10-QPeriod: Q3 FY2019

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Nov 3, 2018

Filed November 29, 2018For Securities:DLTR

Summary

Dollar Tree, Inc. reported solid revenue growth for the nine months ended November 3, 2018, with net sales increasing by 4.6% to $16.6 billion. This growth was driven by both new store openings and a 1.4% increase in comparable store net sales, primarily within the Dollar Tree segment, which saw a 3.3% comparable store sales increase on a constant currency basis. The Family Dollar segment, however, experienced a slight decrease in comparable store sales (-0.4%), indicating ongoing challenges in that segment despite overall positive top-line performance. The company's profitability was impacted by several factors, including increased merchandise costs (especially domestic freight), higher distribution costs, and a strategic reinvestment of income tax savings into store hourly payroll. While net income increased to $716.2 million for the nine-month period, the operating margin for the consolidated company decreased. A significant event during the period was a substantial debt refinancing, which resulted in higher interest expenses due to refinancing costs and premiums paid, although it is expected to yield annual cash interest savings. The company ended the period with a strong liquidity position, with $1.1 billion available under its revolving credit facility.

Financial Highlights

46 data points
Beta

Revenue

$5.53B

30.1% Gross Margin

Net Income

$273.90M

5.0% Net Margin

EPS (Diluted)

$1.15

Total Assets

$16.10B

Cash & Equivalents

$647.30M

Free Cash Flow

$167.80M

Financial Statements
Beta
Revenue$5.53B
Cost of Revenue$3.86B
Gross Profit$1.66B
SG&A Expenses$1.28B
Operating Income$382.50M
Net Income$273.90M
EPS (Basic)$1.15
EPS (Diluted)$1.15
Shares Outstanding (Basic)237.90M
Shares Outstanding (Diluted)238.60M

Key Highlights

  • 1Net sales for the nine months ended November 3, 2018, increased by 4.6% to $16.6 billion.
  • 2Comparable store net sales increased by 1.4% for the nine-month period, driven by a 3.3% increase in the Dollar Tree segment (constant currency), while Family Dollar saw a 0.4% decrease.
  • 3Gross profit margin for the consolidated company decreased to 30.3% from 31.0% in the prior year period, impacted by higher merchandise, distribution, shrink, and occupancy costs.
  • 4Operating income decreased to $1.21 billion from $1.23 billion, with operating margin contracting to 7.3% from 7.8%.
  • 5Significant debt refinancing activities occurred, leading to higher interest expense in the nine-month period due to refinancing costs, but is expected to result in future annual interest savings.
  • 6The company ended the period with $708.3 million in cash and cash equivalents and $1.1 billion available under its revolving credit facility, indicating strong liquidity.
  • 7Effective tax rate significantly decreased due to the Tax Cuts and Jobs Act of 2017.

Frequently Asked Questions

For the nine months ended November 3, 2018, Dollar Tree reported a 4.6% increase in net sales to $16.6 billion, driven by new store growth and improved comparable store sales in the Dollar Tree segment. Net income rose to $716.2 million. However, gross profit margin declined due to rising costs, and operating income saw a slight decrease. The company also undertook a significant debt refinancing which impacted interest expenses.

The Dollar Tree segment showed strong performance with a 7.2% increase in net sales for the nine months and a 3.3% increase in comparable store sales (on a constant currency basis). The Family Dollar segment, however, experienced a smaller net sales increase of 2.1% and a decrease of 0.4% in comparable store sales, indicating ongoing challenges and a need for strategic initiatives within this segment.

The company noted increasing costs in several areas, including merchandise costs (especially domestic freight due to driver shortages), distribution costs, shrink, and occupancy costs. These pressures contributed to a decrease in gross profit margin. While the company is reinvesting tax savings into store payroll, overall profitability margins have contracted, and management is actively working on mitigation strategies for costs like tariffs.

Dollar Tree completed a major debt refinancing in the first quarter of 2018, issuing new notes and securing new credit facilities while repaying existing debt. This resulted in substantial refinancing costs and premiums paid, increasing interest expense for the nine-month period. However, the company expects approximately $48 million in annual cash interest savings from this restructuring and maintains a strong liquidity position with significant available credit.