10-QPeriod: Q2 FY2016

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Aug 1, 2015

Filed September 1, 2015For Securities:DLTR

Summary

Dollar Tree, Inc. reported a net loss of $98.0 million, or $(0.46) per diluted share, for the 13 weeks ended August 1, 2015, a significant shift from the $121.5 million net income, or $0.59 per diluted share, reported in the same period last year. This performance is heavily influenced by the company's recent acquisition of Family Dollar, which closed on July 6, 2015. The acquisition significantly increased net sales by 48.3% to $3,011.2 million for the quarter, but also resulted in substantial acquisition-related expenses, including increased interest expense, debt prepayment fees, and amortization of intangible assets. Despite the quarterly net loss, the company's consolidated balance sheet shows a significant increase in total assets to $16.6 billion, largely due to the integration of Family Dollar's assets, including substantial goodwill and intangible assets related to the acquisition. The balance sheet also reflects a considerable increase in long-term debt to $8.3 billion, primarily from financing the Family Dollar acquisition. The company is navigating a complex integration process, with reported operating losses in the newly acquired Family Dollar segment, driven by markdowns and purchase accounting adjustments. Investors should closely monitor the integration progress and the realization of anticipated synergies.

Financial Highlights

44 data points
Beta

Revenue

$5.09B

30.6% Gross Margin

Net Income

$232.70M

4.6% Net Margin

EPS (Diluted)

$0.98

Total Assets

$10.87B

Cash & Equivalents

$870.40M

Free Cash Flow

$83.50M

Financial Statements
Beta
Revenue$5.09B
Cost of Revenue$1.43B
Gross Profit$1.55B
SG&A Expenses$516.10M
Operating Income$418.70M
Net Income$232.70M
EPS (Basic)$0.34
EPS (Diluted)$0.98
Shares Outstanding (Basic)206.20M
Shares Outstanding (Diluted)207.10M

Key Highlights

  • 1Net sales surged by 48.3% to $3,011.2 million for the 13 weeks ended August 1, 2015, primarily driven by the acquisition of Family Dollar.
  • 2The company reported a net loss of $98.0 million ($0.46 per diluted share) for the quarter, a stark contrast to a net income of $121.5 million ($0.59 per diluted share) in the prior year's quarter.
  • 3Total assets significantly increased to $16.6 billion as of August 1, 2015, reflecting the consolidation of Family Dollar's balance sheet, including substantial goodwill and intangible assets.
  • 4Long-term debt ballooned to $8.3 billion as of August 1, 2015, largely due to financing the Family Dollar acquisition.
  • 5The Family Dollar segment incurred an operating loss of $95.0 million for the period, impacted by markdowns, purchase accounting, and integration costs.
  • 6Dollar Tree segment comparable store sales increased by 2.4%, indicating continued strength in the core business.
  • 7The company incurred substantial acquisition-related expenses, including significant interest expense and debt refinancing costs, contributing to the net loss.

Frequently Asked Questions

The net loss of $98.0 million is primarily attributable to the acquisition of Family Dollar. This includes substantial acquisition-related costs, such as increased interest expense from new debt, debt prepayment fees, and amortization of acquired intangible assets. Additionally, the integration of Family Dollar involves specific costs and purchase accounting adjustments, leading to an operating loss in that segment.

The acquisition has dramatically altered the company's financial statements. Total assets have increased significantly due to the consolidation of Family Dollar's assets, including substantial goodwill and intangible assets. Correspondingly, long-term debt has increased substantially to fund the transaction. The company now operates with two distinct segments: Dollar Tree and the newly acquired Family Dollar.

The core Dollar Tree segment continues to show resilience. For the 13 weeks ended August 1, 2015, comparable store net sales for the Dollar Tree segment increased by 2.4%, driven by higher customer traffic and an increased average ticket. The segment's operating income remained strong, although slightly down as a percentage of sales year-over-year, partly due to acquisition costs.

The primary challenges involve integrating the two distinct retail operations, managing the significant debt incurred, and realizing anticipated synergies and cost savings. The Family Dollar segment itself is currently underperforming, reporting an operating loss due to necessary markdowns, purchase accounting adjustments, and integration expenses. Effectively turning around and integrating Family Dollar will be critical for future success.