10-QPeriod: Q3 FY2016

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Oct 31, 2015

Filed November 24, 2015For Securities:DLTR

Summary

Dollar Tree, Inc.'s 10-Q filing for the period ending October 31, 2015, details the significant impact of the Family Dollar acquisition, which closed on July 6, 2015. The consolidated financial statements show a substantial increase in net sales, driven by the inclusion of Family Dollar's results. However, this period also reflects considerable acquisition-related costs, higher interest expenses due to increased debt, and integration challenges, which have negatively impacted net income and earnings per share compared to the prior year's periods, particularly for the nine-month period. Despite the integration complexities and associated expenses, the company is actively managing its balance sheet, with substantial long-term debt now in place to finance the acquisition. The balance sheet reflects significant increases in assets, including goodwill, reflecting the Family Dollar acquisition. Investors should monitor the integration progress, synergy realization, and the company's ability to manage its increased debt burden while navigating the operational challenges of combining two large retail entities.

Financial Highlights

44 data points
Beta

Revenue

$5.00B

30.3% Gross Margin

Net Income

$170.20M

3.4% Net Margin

EPS (Diluted)

$0.72

Total Assets

$16.70B

Cash & Equivalents

$1.11B

Free Cash Flow

-$449.00M

Financial Statements
Beta
Revenue$5.00B
Cost of Revenue$3.55B
Gross Profit$1.51B
SG&A Expenses$1.18B
Operating Income$357.20M
Net Income$170.20M
EPS (Basic)$0.35
EPS (Diluted)$0.72
Shares Outstanding (Basic)234.70M
Shares Outstanding (Diluted)235.70M

Key Highlights

  • 1Net sales for the 13 weeks ended October 31, 2015, increased by 136.0% to $4,945.2 million, primarily due to the acquisition of Family Dollar, which contributed $2,673.5 million in net sales.
  • 2Operating income for the 13 weeks ended October 31, 2015, increased slightly to $223.7 million from $219.7 million in the prior year, despite a significant increase in SG&A expenses.
  • 3Interest expense surged from $9.3 million to $98.4 million for the 13-week period, reflecting increased debt levels to finance the Family Dollar acquisition.
  • 4Net income for the 13 weeks ended October 31, 2015, decreased to $81.9 million ($0.35 per diluted share) from $133.0 million ($0.64 per diluted share) in the comparable prior year period, impacted by acquisition costs and higher interest.
  • 5Total assets grew significantly to $16,699.0 million as of October 31, 2015, from $3,492.7 million in the prior year, largely due to the acquisition, with goodwill increasing to $5,024.1 million.
  • 6The company incurred $38.7 million in acquisition-related expenses (excluding interest) in the 39 weeks ended October 31, 2015.
  • 7A significant portion of Family Dollar stores (330) were divested on November 1, 2015, to comply with FTC requirements, representing approximately $45.5 million in annual operating income.

Frequently Asked Questions

The primary driver of the substantial increase in net sales is the acquisition of Family Dollar, which closed on July 6, 2015. Family Dollar's results are now consolidated, contributing $2,673.5 million to net sales in the 13 weeks ended October 31, 2015.

The acquisition has significantly impacted profitability. While net sales have dramatically increased, net income for the 13 weeks ended October 31, 2015, decreased to $81.9 million from $133.0 million in the prior year. This was due to increased operating expenses, particularly higher selling, general, and administrative costs related to integration, and a substantial increase in interest expense stemming from new debt financing for the acquisition. Acquisition-related expenses and purchase accounting adjustments also negatively affected net income.

Dollar Tree took on substantial debt to finance the Family Dollar acquisition, with long-term debt increasing from $757.0 million as of January 31, 2015, to $8,486.2 million as of October 31, 2015. This significant increase in debt has led to a corresponding rise in interest expense. Investors should monitor the company's ability to service this debt and manage its leverage ratios.

Yes, as a condition of the Family Dollar acquisition, Dollar Tree divested 330 Family Dollar stores on November 1, 2015. The company is also actively engaged in integrating the Family Dollar business, which involves ongoing expenses and efforts to realize anticipated synergies. The initial integration has led to increased SG&A expenses, including amortization of intangible assets.