10-QPeriod: Q1 FY2018

DOLLAR TREE, INC. Quarterly Report for Q1 Ended Apr 29, 2017

Filed May 25, 2017For Securities:DLTR

Summary

Dollar Tree, Inc.'s first quarter 2017 report shows a modest increase in net sales, driven by new store openings and a slight uptick in comparable store sales for the Dollar Tree banner, offset by a decrease in comparable store sales for Family Dollar. While overall net sales grew, net income decreased year-over-year due to a significant $50.9 million receivable impairment charge related to the divestiture of certain Family Dollar stores. This impairment charge heavily impacted the Family Dollar segment's operating income, which saw a substantial decline. The company demonstrated improved operational efficiency in its Dollar Tree segment, with increased gross profit margin and operating income margin. Conversely, the Family Dollar segment experienced margin compression due to higher markdowns, shrink, and selling, general, and administrative expenses. Despite the challenges, the company maintained a strong cash flow from operations and ended the quarter with a healthy cash balance, indicating continued financial stability.

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

$15.99B

Cash & Equivalents

$1.15B

Free Cash Flow

$320.40M

Financial Statements
Beta
Revenue$5.29B
Cost of Revenue$3.66B
Gross Profit$1.63B
SG&A Expenses$1.24B
Operating Income$388.80M
Net Income$200.50M
EPS (Basic)$0.85
EPS (Diluted)$0.85
Shares Outstanding (Basic)236.30M
Shares Outstanding (Diluted)237.30M

Key Highlights

  • 1Net sales increased by 4.0% to $5.29 billion, driven by new store growth.
  • 2Diluted earnings per share decreased to $0.85 from $0.98 in the prior year's quarter, impacted by a $50.9 million receivable impairment charge.
  • 3The Dollar Tree segment showed strong performance with comparable store net sales up 2.5% and operating income margin increasing to 12.3%.
  • 4The Family Dollar segment experienced a 1.2% decrease in comparable store net sales, contributing to a significant drop in its operating income.
  • 5Gross profit margin improved slightly to 30.8% from 30.6% year-over-year, benefiting from lower merchandise and freight costs.
  • 6Cash flow from operating activities significantly increased to $430.7 million, up from $311.0 million in the prior year.
  • 7The company recorded a $50.9 million receivable impairment charge related to the divestiture of certain Family Dollar stores, significantly impacting profitability.

Frequently Asked Questions

The primary reason for the decrease in net income was a significant $50.9 million receivable impairment charge recognized in the first quarter of 2017. This charge is related to the collectability of receivables from the divestiture of certain Family Dollar stores.

The Dollar Tree segment demonstrated robust growth with a 2.5% increase in comparable store net sales and an improved operating income margin. In contrast, the Family Dollar segment saw a 1.2% decrease in comparable store net sales, and its operating income was heavily impacted by the receivable impairment charge, leading to a substantial decline.

The company's cash flow from operations increased significantly in the quarter. As of April 29, 2017, Dollar Tree had $6.36 billion in total borrowings and $1.09 billion available under its revolving credit facility, indicating a stable liquidity position. The company is also compliant with its debt covenants.

The company is involved in various legal proceedings, including employment-related matters and class action lawsuits. While Dollar Tree does not believe these proceedings will individually or in aggregate materially affect its financial condition, it cannot assure that they won't impact future operating results. A notable item is the ongoing dispute with the divestiture buyer of certain Family Dollar stores, which led to the receivable impairment charge.