10-QPeriod: Q3 FY2011

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Oct 30, 2010

Filed November 18, 2010For Securities:DLTR

Summary

Dollar Tree, Inc. reported strong financial performance for the third quarter of fiscal year 2010, reflecting robust sales growth and improved profitability. Net sales increased by 14.2% year-over-year to $1.43 billion for the 13-week period, driven by an 8.7% increase in comparable store sales, indicating healthy customer traffic and higher average ticket prices. This growth was supported by strategic initiatives such as the expansion of frozen and refrigerated merchandise and the broader acceptance of SNAP benefits. The company demonstrated solid operational execution, with operating income increasing by 31% to $140.9 million. The gross profit margin saw a slight increase to 35.5%, primarily benefiting from favorable occupancy, distribution, markdown, and shrink costs, although partially offset by higher merchandise and freight costs. Selling, general, and administrative expenses as a percentage of net sales decreased, further contributing to improved operating leverage. For the 39-week period, net sales grew 13.2% to $4.16 billion, with operating income up 26% to $371.3 million. Investors can take comfort in the company's consistent expansion and effective management of expenses, even as it navigates increased merchandise costs.

Financial Highlights

42 data points
Beta

Revenue

$1.43B

35.5% Gross Margin

Net Income

$93.20M

6.5% Net Margin

EPS (Diluted)

$0.36

Total Assets

$2.36B

Cash & Equivalents

$309.50M

Free Cash Flow

$37.40M

Financial Statements
Beta
Revenue$1.43B
Cost of Revenue$920.60M
Gross Profit$506.00M
SG&A Expenses$365.10M
Operating Income$140.90M
Net Income$93.20M
EPS (Basic)$0.36
EPS (Diluted)$0.36
Shares Outstanding (Basic)254
Shares Outstanding (Diluted)256

Key Highlights

  • 1Net sales increased by 14.2% to $1.43 billion for the 13 weeks ended October 30, 2010, compared to the prior year.
  • 2Comparable store net sales increased by 8.7% for the 13-week period, indicating strong performance in existing stores.
  • 3Operating income for the 13-week period rose by 31.0% to $140.9 million.
  • 4Gross profit margin improved slightly to 35.5% for the 13-week period.
  • 5Selling, general, and administrative expenses as a percentage of net sales decreased to 25.6% from 26.7% year-over-year.
  • 6The company opened 216 new stores during the first 39 weeks of fiscal 2010, contributing to overall sales growth.
  • 7Dollar Tree completed the acquisition of 86 Dollar Giant stores in Canada in November 2010, marking its first international expansion.

Frequently Asked Questions

The primary drivers of Dollar Tree's sales growth were an increase in comparable store net sales (up 8.7% for the 13-week period) and the contribution from newly opened stores. Factors contributing to the comparable store sales increase include higher customer traffic and an increased average ticket price, supported by initiatives like expanded frozen/refrigerated merchandise offerings and increased SNAP acceptance.

The company transitioned to a more refined retail inventory calculation using approximately thirty inventory pools instead of one, starting in fiscal 2010. This change resulted in a non-cash charge of $26.3 million to gross profit and a reduction in inventory in the first quarter of 2010. While this adjustment negatively impacted the gross profit margin for the 39-week period (decreasing it by 0.2 percentage points), the company states that without this charge, the gross profit margin actually increased year-over-year.

Dollar Tree anticipates that the shift in merchandise mix towards more basic, consumable products, along with higher freight costs, will negatively impact its gross profit margin for the remainder of fiscal 2010. However, the company believes that increased sales from these frequently purchased items will leverage fixed costs, contributing to overall earnings growth. Management is actively managing expenses, as evidenced by the decrease in SG&A as a percentage of sales.

Dollar Tree is involved in several class and collective action lawsuits primarily related to employment matters, specifically concerning employee classification and pay (overtime, equal pay, and gender pay/promotion discrimination). While the company is vigorously defending itself and does not believe these matters will individually or in aggregate have a material adverse effect on its business or financial condition, it acknowledges that the resolution of one or more lawsuits could materially impact its results of operations for the period in which they are resolved.