10-QPeriod: Q1 FY2020

DOLLAR TREE, INC. Quarterly Report for Q2 Ended May 4, 2019

Filed May 31, 2019For Securities:DLTR

Summary

Dollar Tree, Inc.'s first quarter of fiscal year 2019 (ended May 4, 2019) demonstrated a net sales increase of 4.6% to $5.81 billion, driven by both new store openings and a 2.2% comparable store net sales growth (on a constant currency basis). Despite revenue growth, profitability faced pressure. Gross profit margin declined to 29.7% from 30.6% year-over-year, primarily due to increased merchandise costs (including freight), higher shrink at Family Dollar, and increased distribution costs. Operating income decreased by 11.9% to $385.5 million, with the operating margin contracting to 6.6% from 7.9%. This was exacerbated by a significant reduction in interest expense due to debt refinancing in the prior year, which masked underlying operational margin pressures. The company is actively implementing a Family Dollar store optimization program, including renovations, accelerated store closures, and re-bannering, which is expected to incur significant costs but aims to improve future performance. Key financial shifts include a substantial increase in cash and cash equivalents to $725.8 million, a robust operating cash flow of $614.1 million, and a share repurchase program of $100 million in the quarter, indicating management's confidence and commitment to returning value to shareholders, alongside ongoing strategic initiatives to revitalize the Family Dollar segment.

Financial Highlights

5 data points
Beta

Revenue

$6.21B

30.8% Gross Margin

Net Income

-$2.31B

-37.2% Net Margin

EPS (Diluted)

$-9.69

Financial Statements
Beta
Revenue$6.21B
Gross Profit$1.91B
Operating Income-$2.15B
Net Income-$2.31B
EPS (Diluted)$-9.69

Key Highlights

  • 1Net sales increased by 4.6% to $5.81 billion compared to the prior year's first quarter.
  • 2Comparable store net sales grew by 2.2% on a constant currency basis, with the Dollar Tree segment up 2.5% and Family Dollar up 1.9%.
  • 3Gross profit margin decreased to 29.7% from 30.6% due to higher merchandise and freight costs, increased shrink at Family Dollar, and rising distribution costs.
  • 4Operating income decreased by 11.9% to $385.5 million, and operating margin declined to 6.6% from 7.9%.
  • 5Significant reduction in interest expense (from $230.0M to $41.4M) due to debt refinancing in the prior year, which positively impacted net income ($267.9M vs. $160.5M).
  • 6The company is executing a Family Dollar store optimization program, including closing up to 390 underperforming stores and renovating approximately 1,000 to the H2 model.
  • 7Shareholder equity decreased from $7.36 billion in May 2018 to $5.76 billion in May 2019, partly due to share repurchases and adoption of new lease accounting standards.

Frequently Asked Questions

Dollar Tree reported a net sales increase of 4.6% to $5.81 billion for the 13 weeks ended May 4, 2019, compared to $5.55 billion in the same period last year. This growth was driven by sales from new stores and a 2.2% increase in comparable store net sales on a constant currency basis.

Profitability was pressured by a decrease in gross profit margin to 29.7% from 30.6% year-over-year. This was primarily due to higher merchandise costs (including freight), increased shrink at Family Dollar, and elevated distribution costs. Selling, general, and administrative expenses also increased as a percentage of net sales.

Dollar Tree is implementing a significant optimization program for Family Dollar, which includes renovating approximately 1,000 stores to the 'H2' model, accelerating the closure of up to 390 underperforming stores, and re-bannering about 200 Family Dollar stores to the Dollar Tree brand. These initiatives are expected to incur significant costs in the short term but are aimed at improving the segment's performance.

Interest expense significantly decreased due to debt refinancing in the prior year and the prepayment of a Term Loan Facility. The company generated strong operating cash flow of $614.1 million and ended the quarter with $725.8 million in cash and cash equivalents, an increase from the prior year. Additionally, Dollar Tree repurchased $100 million of its stock during the quarter.