8-KOther Events

DOLLAR TREE, INC. 8-K Report (Aug 29, 2003)

Filed August 29, 2003For Securities:DLTR

Summary

Dollar Tree Stores, Inc. reported robust net sales growth of 22% to $626 million for its fiscal second quarter of 2003, with comparable store sales increasing by 5.1%, primarily driven by higher customer traffic. While overall sales showed strong performance, the company experienced a slight decrease in gross margin to 35.3% from 35.7% in the prior year's quarter. This margin compression was attributed to a higher proportion of lower-margin basic merchandise sales, a non-cash expense related to the adoption of FIN 46 impacting inventory valuation, and the inclusion of Greenbacks' lower-margin sales. The company provided a positive outlook for the fiscal year 2003, projecting net sales and earnings growth of at least 19%, supported by strong first-half results and the integration of Greenbacks. Dollar Tree anticipates comparable store net sales to be slightly positive for the full year. Management expects sequential gross margin improvements in the fourth quarter and reiterated a long-term gross margin target of 36%-37%. Significant square footage growth is also planned, with approximately 50-70 larger format stores expected by year-end and ongoing conversion of Greenbacks stores.

Key Highlights

  • 1Net sales for Q2 2003 grew 22% year-over-year to $626 million.
  • 2Comparable store net sales increased by 5.1%, driven by increased foot traffic.
  • 3Gross margin declined slightly to 35.3% due to merchandise mix, FIN 46 adoption, and Greenbacks integration.
  • 4Cash and investments were $100 million, and inventory was $513.3 million, both above plan.
  • 5Company forecasts at least 19% net sales and earnings growth for fiscal year 2003.
  • 6Significant selling square footage growth of 28% is expected for the full fiscal year.
  • 7Plans to convert 40 Greenbacks stores to Dollar Tree signage and fixtures in fiscal 2003.

Frequently Asked Questions

The primary driver of Dollar Tree's 22% net sales increase and 5.1% comparable store sales growth in the second quarter of 2003 was a significant increase in customer foot traffic.

The decline in gross margin to 35.3% was due to a combination of factors: a higher percentage of lower-margin basic merchandise sales, a $1.0 million non-cash expense from adopting FIN 46 which impacted inventory accounting, and the inclusion of sales from the recently acquired Greenbacks stores, which have lower margins.

Dollar Tree projects at least 19% net sales and earnings growth for fiscal year 2003, expecting slightly positive comparable store sales. The company anticipates gross margin improvements in the fourth quarter and maintains a long-term gross margin target of 36%-37%. For fiscal 2004, the focus will be on improving Greenbacks' merchandise mix and margins, reducing SG&A expenses, and growing earnings faster than sales.

Greenbacks did not contribute significantly to Q2 income, and integration expenses were approximately $300,000. The company expects Greenbacks' merchandise margins to improve, with the full impact realized in fiscal 2004. Plans are in place to convert 40 Greenbacks stores to Dollar Tree signage and fixtures in fiscal 2003, with the remaining conversions by mid-fiscal 2004.