Dollar Tree, Inc. — Form 10-Q Summary
Period clarification: The request metadata says “2010 Q2,” but the filing is for the 13 and 26 weeks ended July 30, 2011, compared with periods ended July 31, 2010. The filing was signed August 18, 2011. Dollar Tree operated 4,242 stores across the U.S. and Canada at quarter-end.
Financial performance
| Metric | 13 weeks ended July 30, 2011 | Change vs. 2010 | 26 weeks ended July 30, 2011 | Change vs. 2010 |
|---|---|---|---|---|
| Net sales | $1,542.4 million | Up 11.9% | $3,088.3 million | Up 13.1% |
| Gross profit | $542.4 million | Up from $483.5 million | $1,083.2 million | Up from $933.7 million |
| Operating income | $153.5 million | Up from $127.8 million | $315.2 million | Up from $230.4 million |
| Net income | $94.9 million | Up from $78.0 million | $195.9 million | Up from $141.6 million |
| Diluted EPS | $0.77 | Up from $0.61 | $1.59 | Up from $1.10 |
Second-quarter gross margin was 35.2%, versus 35.1%; operating margin was 10.0%, versus 9.3%. For the first half, gross margin was 35.1%, versus 34.2% as reported. Excluding the prior-year $26.3 million non-cash inventory adjustment, first-half 2010 gross margin was 35.2%; on that comparable basis, 2011 margin declined slightly. First-half operating margin was 10.2%, versus 8.4% reported, or 9.4% excluding that adjustment.
First-half operating cash flow was $259.2 million, versus $153.8 million. Investing cash outflow was $70.3 million and financing cash outflow was $79.4 million. Capital expenditures were $121.3 million, compared with $90.1 million. Cash and cash equivalents were $421.6 million at July 30, 2011; short-term investments were $123.8 million. Total current assets were $1,408.3 million and current liabilities $495.8 million.
Long-term borrowings, including current debt, totaled $265.5 million. The company reported $300.0 million available under its revolving credit facility; approximately $177.0 million of letters of credit were outstanding under separate agreements. The filing reports no dividends. First-half share repurchases were approximately $96.7 million for 1.9 million shares, with $249.2 million remaining under the authorization.
Material changes and management commentary
- Comparable-store sales increased 4.7% in the quarter and 5.9% for the half, driven by higher traffic (up 3.6% for both reported periods) and a 1.1% higher average ticket. Total sales growth also reflected new stores.
- Management attributed quarterly margin improvement to better merchandise costs and improved SG&A leverage, partly offset by higher freight costs, a more consumables-heavy mix, and increased shrink. First-half SG&A fell to 24.9% of sales from 25.8%.
- The company opened 159 stores, expanded 64, and closed 18 during the first half. Frozen and refrigerated merchandise was available in approximately 2,040 stores, versus 1,680 a year earlier. Management said consumables demand remained strong, while noting that product mix may affect merchandise costs.
- Operating cash flow increased primarily due to earnings growth and lower inventory levels. Capital spending increased, including spending on new and relocated stores and expansion of the Savannah distribution center.
Outlook, risks, and contingencies
The filing provides no specific numerical earnings or sales guidance. Management cautioned that interim results are not necessarily indicative of full-year results and described expectations as subject to risks. Highlighted exposures include inflation and freight, fuel and wage costs; imported merchandise availability and cost; economic conditions; merchandise mix; competition; store expansion returns; and peak-season sales. Fuel contracts covered approximately 5.6 million gallons, or about 50% of expected needs from August 2011 through July 2012; their July 30 fair value was a $0.4 million asset.
Several employment-related class or collective actions remain pending, and Winn-Dixie alleges violations of exclusive leasing rights and seeks damages and injunctive relief. The company said it would defend the matters, did not believe they would materially affect its business or financial condition, but could not estimate potential losses on unresolved cases and acknowledged they could affect results in the period resolved. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2010 Q2, while the filing covers Q2 2011.
- Assess first-half margin trends using the comparable 2010 figures that exclude the $26.3 million inventory adjustment.
- Monitor whether sales growth and expense leverage persist as consumables, frozen and refrigerated offerings expand, and freight and other costs change.
- Review capital spending, seasonal working-capital needs, borrowing availability, and the pace and price of share repurchases.
- Track developments in pending litigation, particularly the Winn-Dixie lease dispute and employment claims; no loss range is provided for unresolved matters.