10-QPeriod: Q1 FY2014

DOLLAR TREE, INC. Quarterly Report for Q2 Ended May 4, 2013

Filed May 23, 2013For Securities:DLTR

Summary

Dollar Tree, Inc. reported strong first-quarter results for fiscal year 2013, demonstrating robust top-line growth and improved profitability. Net sales increased by 8.3% to $1.87 billion, driven by new store openings and a 2.1% rise in comparable store net sales, signaling healthy consumer demand. The company also achieved enhanced operating efficiency, with operating income growing by 14.7% year-over-year. This improvement was supported by a higher gross profit margin and a reduction in selling, general, and administrative expenses as a percentage of sales. Diluted earnings per share rose to $0.59 from $0.50 in the prior year, reflecting the company's ability to translate sales growth into bottom-line gains. Dollar Tree also continued its share repurchase program, returning capital to shareholders, and maintained a strong liquidity position with healthy cash flow from operations.

Financial Highlights

5 data points
Beta

Revenue

$2.25B

37.9% Gross Margin

Net Income

$228.60M

10.2% Net Margin

EPS (Diluted)

$1.01

Financial Statements
Beta
Revenue$2.25B
Gross Profit$850.70M
Operating Income$363.50M
Net Income$228.60M
EPS (Diluted)$1.01

Key Highlights

  • 1Net sales increased by 8.3% to $1.87 billion for the 13 weeks ended May 4, 2013, compared to $1.72 billion in the prior year period.
  • 2Comparable store net sales grew by 2.1%, indicating positive performance in existing stores.
  • 3Gross profit margin improved to 35.2% from 35.0% year-over-year.
  • 4Operating income increased by 14.7% to $216.6 million.
  • 5Diluted earnings per share grew to $0.59 from $0.50 in the comparable prior year period.
  • 6The company opened 94 new stores and expanded 16 stores during the quarter, continuing its growth strategy.
  • 7Dollar Tree repurchased approximately 1.5 million shares for $68.4 million during the quarter, with $791.3 million remaining under its repurchase authorization.

Frequently Asked Questions

Sales growth was driven by two main factors: the opening of 94 new stores and a 2.1% increase in comparable store net sales. The comparable store sales increase was attributed to higher average ticket prices and increased customer traffic, supported by initiatives like the increased penetration of debit and credit cards and the expansion of frozen and refrigerated merchandise offerings.

The company improved its operating income through a combination of strategies. Gross profit margin increased due to better initial mark-ups, offset by higher shrink costs. Selling, general, and administrative expenses decreased as a percentage of sales, primarily due to lower payroll expenses resulting from reduced incentive compensation, improved labor productivity, and leveraging fixed costs with higher sales. Store operating costs also decreased due to reduced repairs and maintenance.

Dollar Tree acknowledges several ongoing litigation matters, including collective and class-action lawsuits related to employment classification and wage and hour claims, as well as a commercial dispute. The company states it will vigorously defend itself and does not believe that any of these matters will, individually or in the aggregate, have a material adverse effect on its business or financial condition. However, they cannot guarantee that they won't materially impact results of operations in the period they are resolved.

Dollar Tree uses fuel derivative contracts to manage fluctuations in diesel fuel costs. In the first quarter of 2013, approximately 19% of its domestic truckload fuel needs were hedged. The company has further contracts in place to hedge approximately 20% of its needs through January 2014. These contracts do not qualify for hedge accounting, so changes in their fair value are recognized in earnings.