10-QPeriod: Q3 FY2018

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Oct 28, 2017

Filed November 21, 2017For Securities:DLTR

Summary

Dollar Tree, Inc. reported strong financial performance for the third quarter of fiscal year 2017, with net sales increasing by 6.3% to $5.32 billion year-over-year. This growth was driven by comparable store net sales increases of 3.2% (on a constant currency basis), benefiting from higher customer counts and average ticket prices. The company also saw an improvement in gross profit margin to 31.3% and a significant increase in operating income to $425.2 million, reflecting better cost management and improved merchandise costs. Operationally, the Dollar Tree segment continued its robust growth with comparable store sales up 5.0% (constant currency), bolstered by initiatives like the expansion of frozen and refrigerated merchandise. The Family Dollar segment also showed signs of recovery, with comparable store sales increasing by 1.5% (constant currency), supported by a store renovation initiative. Despite a notable $53.5 million receivable impairment related to the Family Dollar acquisition divestiture, the company demonstrated solid execution across both segments, leading to a substantial increase in net income to $239.9 million, or $1.01 per diluted share.

Financial Highlights

43 data points
Beta

Revenue

$5.32B

31.3% Gross Margin

Net Income

$239.90M

4.5% Net Margin

EPS (Diluted)

$1.01

Total Assets

$15.73B

Cash & Equivalents

$400.10M

Free Cash Flow

-$260.30M

Financial Statements
Beta
Revenue$5.32B
Cost of Revenue$3.65B
Gross Profit$1.67B
SG&A Expenses$1.24B
Operating Income$425.20M
Net Income$239.90M
EPS (Basic)$1.01
EPS (Diluted)$1.01
Shares Outstanding (Basic)236.90M
Shares Outstanding (Diluted)237.80M

Key Highlights

  • 1Net sales for the third quarter increased 6.3% to $5.32 billion, driven by new store openings and a 3.2% increase in comparable store net sales (constant currency).
  • 2Gross profit margin improved to 31.3% from 30.4% in the prior year's quarter, attributed to lower merchandise costs and occupancy costs.
  • 3Operating income rose significantly to $425.2 million, with the operating margin expanding to 8.0% from 6.8% year-over-year.
  • 4Dollar Tree segment comparable store net sales grew by 5.0% (constant currency), supported by initiatives like expanded frozen/refrigerated merchandise.
  • 5Family Dollar segment comparable store net sales increased by 1.5% (constant currency), benefiting from ongoing renovation initiatives.
  • 6A $53.5 million receivable impairment charge was recorded related to the divestiture of stores post-Family Dollar acquisition.
  • 7Diluted net income per share was $1.01, a significant increase from $0.72 in the prior year's comparable quarter.

Frequently Asked Questions

Revenue growth was primarily driven by sales from new Dollar Tree and Family Dollar stores, coupled with a comparable store net sales increase of 3.2% (on a constant currency basis). This comparable store sales increase was attributed to higher customer counts and an increased average ticket price.

The company demonstrated effective expense management. Selling, general, and administrative expenses as a percentage of sales decreased to 23.3% from 23.6% in the prior year's quarter. This was due to lower depreciation and utility costs as a percentage of sales, partially offset by increases in advertising, store supplies, and payroll. The improved gross profit margin and controlled SG&A expenses led to a significant increase in operating income and a higher operating margin.

The $53.5 million receivable impairment charge relates to receivables from the buyer of stores that Dollar Tree was required to divest following the Family Dollar acquisition. The company determined this amount was not recoverable and wrote it down. While it impacted the net income for the period, management indicated they do not expect any additional amounts to become impaired and plan to pursue all appropriate actions to enforce their rights.

The Dollar Tree segment continues to show strong performance with a 5.0% comparable store sales growth (constant currency), driven by its fixed $1.00 price point and expansion of product offerings like frozen foods. The Family Dollar segment is showing signs of improvement with a 1.5% comparable store sales growth (constant currency), supported by store renovation initiatives aimed at enhancing the shopping experience. While Dollar Tree's segment profitability margins are notably higher, Family Dollar's operational improvements are contributing positively to the overall company results.