10-QPeriod: Q1 FY2017

DOLLAR TREE, INC. Quarterly Report for Q1 Ended Apr 30, 2016

Filed June 9, 2016For Securities:DLTR

Summary

Dollar Tree, Inc.'s first quarter 2016 filing shows a significant expansion following the acquisition of Family Dollar. Net sales surged by 133.6% year-over-year to $5,085.8 million, primarily driven by the inclusion of Family Dollar's sales. The company reported a substantial increase in net income to $232.7 million ($0.98 per diluted share) from $69.5 million ($0.34 per diluted share) in the prior year period. This growth, however, comes with the understanding that the reported figures for the current period are heavily influenced by the Family Dollar acquisition, which closed in July 2015. While the combined entity shows strong top-line growth, investors should note the impact of integration costs and the differing margin profiles of the two segments, with Family Dollar operating at a lower gross profit margin. The balance sheet reflects increased assets and liabilities following the acquisition. Total assets grew to $16,060.9 million, with significant goodwill attributed to the Family Dollar purchase. Long-term debt also increased substantially to support the acquisition. Cash flow from operations more than doubled, indicating improved operational cash generation, though investing activities showed a net outflow due to capital expenditures. Financing activities in the prior year were dominated by debt proceeds for the acquisition.

Financial Highlights

43 data points
Beta

Revenue

$5.29B

30.8% Gross Margin

Net Income

$200.50M

3.8% Net Margin

EPS (Diluted)

$0.85

Total Assets

$16.06B

Cash & Equivalents

$929.70M

Free Cash Flow

$135.10M

Financial Statements
Beta
Revenue$5.29B
Cost of Revenue$3.53B
Gross Profit$1.63B
SG&A Expenses$1.14B
Operating Income$388.80M
Net Income$200.50M
EPS (Basic)$0.99
EPS (Diluted)$0.85
Shares Outstanding (Basic)235.30M
Shares Outstanding (Diluted)236.40M

Key Highlights

  • 1Net sales dramatically increased by 133.6% to $5,085.8 million, largely due to the acquisition of Family Dollar.
  • 2Net income surged to $232.7 million ($0.98 diluted EPS) from $69.5 million ($0.34 diluted EPS) in the prior year period.
  • 3The company reported a lower consolidated gross profit margin of 30.6% compared to 34.4% in the prior year, primarily due to the lower-margin product mix of Family Dollar.
  • 4Operating income increased to $418.7 million, but the operating income margin decreased to 8.2% from 10.7% due to the inclusion of Family Dollar's results.
  • 5Total assets grew significantly to $16,060.9 million, including substantial goodwill ($5,024.9 million) from the Family Dollar acquisition.
  • 6Long-term debt increased, with total borrowings of $7,444.7 million reported at the end of the quarter, reflecting financing for the acquisition.
  • 7Net cash provided by operating activities more than doubled to $311.0 million, demonstrating improved cash generation from operations.

Frequently Asked Questions

The acquisition of Family Dollar, which closed in July 2015, significantly impacted the company's results. Net sales increased by 133.6% due to the consolidation of Family Dollar's operations. However, the integration of Family Dollar, which has a lower gross profit margin than Dollar Tree, led to a decrease in the consolidated gross profit margin and operating income margin despite higher overall revenue and net income.

Dollar Tree's long-term debt has increased substantially to finance the Family Dollar acquisition. As of April 30, 2016, total borrowings were $7,444.7 million. The company has approximately $1,066.7 million available under its revolving credit facility and was in compliance with its debt covenants at the end of the quarter.

The filing indicates that Family Dollar's results are fully included in the current period. While specific integration costs are not detailed in the summarized financial statements, the Management's Discussion and Analysis highlights 'Family Dollar integration plans and expenses' and 'the benefits, results and effects of the Family Dollar acquisition and integration' as forward-looking statements. The lower gross profit margin of Family Dollar is noted as a factor impacting the consolidated results, suggesting ongoing management attention is required for integration and synergy realization.

For the Dollar Tree segment, comparable store net sales increased by 2.2% (or 2.3% on a constant currency basis) driven by increased customer traffic and a higher average ticket. Comparable store sales information for the Family Dollar segment is not provided for this period because the acquisition occurred during the fiscal year 2015, and the stores had not yet completed their initial fifteen months of operation post-acquisition to be included in the comparable sales calculation. However, the overall net sales increase reflects the contribution of all stores, including newly acquired Family Dollar locations.