10-QPeriod: Q3 FY2022

DOLLAR TREE, INC. Quarterly Report for Q3 Ended Oct 30, 2021

Filed November 23, 2021For Securities:DLTR

Summary

Dollar Tree, Inc. reported third-quarter results for fiscal year 2021, showing a 3.9% increase in net sales to $6.4 billion for the 13-week period, driven by both new store growth and positive comparable store net sales, particularly in the Family Dollar segment. However, profitability faced pressure, with operating income declining 33.3% year-over-year for the quarter, largely due to a significant decrease in gross profit margin. This margin compression was primarily attributed to a sharp increase in merchandise costs, including higher freight expenses, and elevated distribution costs. Despite these challenges, the company continued to advance its strategic initiatives, including the rollout of the $1.25 price point at Dollar Tree stores and the expansion of the Family Dollar Combo store format.

Financial Highlights

39 data points
Beta

Revenue

$6.42B

27.5% Gross Margin

Net Income

$216.80M

3.4% Net Margin

EPS (Diluted)

$0.96

Total Assets

$21.39B

Cash & Equivalents

$701.40M

Free Cash Flow

$462.50M

Financial Statements
Beta
Revenue$6.42B
Cost of Revenue$4.65B
Gross Profit$1.76B
SG&A Expenses$1.46B
Operating Income$310.50M
Net Income$216.80M
EPS (Basic)$0.96
EPS (Diluted)$0.96
Shares Outstanding (Basic)224.90M
Shares Outstanding (Diluted)225.80M

Key Highlights

  • 1Net sales increased by 3.9% to $6.4 billion for the 13 weeks ended October 30, 2021, compared to the prior year period.
  • 2Enterprise comparable store net sales increased by 1.6% on a constant currency basis for the quarter, driven by a higher average ticket size (+3.5%) despite a decrease in customer traffic (-1.8%).
  • 3Gross profit margin decreased by 370 basis points to 27.5% for the 13-week period, primarily due to a 360 basis point increase in merchandise and freight costs.
  • 4Operating income decreased by 33.3% to $310.5 million for the quarter, reflecting the lower gross profit margin.
  • 5Dollar Tree segment saw net sales grow 3.5% driven by new stores and a 0.6% comparable store net sales increase, though its operating income margin declined.
  • 6Family Dollar segment's net sales grew 4.3% driven by comparable store net sales increases and new stores, but its operating income margin also decreased.
  • 7The company significantly increased its share repurchase activity, spending $950.0 million in the 39-week period compared to $200.0 million in the prior year.

Frequently Asked Questions

The primary driver for the decrease in gross profit margin was the significant increase in merchandise costs, including freight, which rose by 360 basis points. This was exacerbated by higher distribution costs due to increased payroll and depreciation, as well as higher occupancy and markdown costs.

The company was in the process of rolling out the $1.25 price point to over 100 legacy Dollar Tree stores by October 30, 2021, with plans for a broader rollout. While initial results are not detailed for this period, management believes the new pricing strategy will enable introductions of new products and expanded assortments.

Dollar Tree is experiencing significant supply chain disruptions, including shipping delays, port congestion, and increased freight costs. Additionally, labor shortages are impacting distribution centers and stores, leading to higher operating costs and potential impacts on efficiency and product availability. The company is actively working on mitigation strategies such as chartered vessels and exploring alternative supply sources.

The company repurchased a substantial amount of its common stock, spending $950.0 million in the first 39 weeks of fiscal 2021, a significant increase from the prior year. The board also authorized an additional $1.05 billion for share repurchases, indicating a strong focus on returning capital to shareholders.