Dollar Tree, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended April 30, 2011, compared with the 13 weeks ended May 1, 2010. The request metadata says “2010 Q1,” but the filing itself reports first-quarter fiscal 2011 results.
Key financial results
| Metric | Q1 2011 | Comparable period | Change |
|---|---|---|---|
| Net sales | $1,545.9 million | $1,352.6 million | +14.3% |
| Gross profit | $540.8 million | $450.2 million | +20.1% |
| Operating income | $161.7 million | $102.6 million | +57.6% |
| Net income | $101.0 million | $63.6 million | +58.8% |
| Diluted EPS | $0.82 | $0.49 | +$0.33 |
| Cash from operations | $156.3 million | $35.8 million | +$120.5 million |
Comparable-store sales increased 7.1%, attributed to higher traffic and average ticket. Gross margin was 35.0%, versus 33.3% reported a year earlier; the prior period included a $26.3 million non-cash inventory adjustment. Excluding that adjustment, gross margin declined 20 basis points from 35.2%. SG&A was 24.5% of sales, down from 25.7%. Operating margin was 10.5%, versus 7.6% reported; excluding the prior-year inventory charge, it increased from 9.5%.
Cash flow, liquidity and capital
Operating cash flow was $156.3 million; capital expenditures were $58.3 million, leaving approximately $98.0 million after capital expenditures. Management attributed stronger operating cash flow mainly to lower inventory and higher earnings before depreciation and amortization. Investing activities used $22.1 million, while financing activities used $75.0 million, including $88.6 million for share repurchases.
At April 30, 2011, cash and cash equivalents were $371.3 million, short-term investments $139.0 million, and current assets $1,325.5 million against current liabilities of $504.7 million. Total debt was $266.5 million, including $16.5 million current and $250.0 million long-term; $300.0 million was available under the revolving credit facility. The company repurchased approximately 1.7 million shares and had $257.4 million remaining under its authorization.
Business, changes and outlook
The company operated 4,177 stores in the U.S. and Canada at quarter-end, with 36.0 million selling square feet, compared with 3,874 stores and 33.0 million square feet a year earlier. During the quarter it opened 83 stores, expanded 41 and closed 7. Frozen and refrigerated merchandise was available in approximately 1,960 stores, versus 1,560 a year earlier.
Sales growth reflected comparable-store gains and new stores. SG&A leverage and the absence of the prior-year inventory charge supported higher reported operating income. Higher ocean freight and diesel costs pressured merchandise costs; improved initial merchandise mark-on partly offset that pressure. Management provided no specific financial guidance in the supplied filing text and cautioned that quarterly results are not necessarily indicative of full-year results.
Risks, contingencies and unusual items
Risks highlighted include inflation and freight, fuel, wage and benefit costs; imported merchandise supply and cost; product mix and margin pressure; competition; economic weakness; store expansion execution; and seasonal sales. The company hedged diesel costs for about 50% of expected fuel needs from August 2011 through January 2012; these derivatives do not qualify for hedge accounting and had a $0.9 million asset fair value at quarter-end.
Several employment-related class and collective actions were pending, including claims involving overtime, off-the-clock work, pay discrimination and California expense reimbursement and meal breaks. The company said it would vigorously defend the cases and did not expect them to materially adversely affect its business or financial condition, but could not rule out an effect on results in the period of resolution. The filing does not quantify potential exposure. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification checklist
- Confirm the fiscal-period labeling: the filing is for the 13 weeks ended April 30, 2011, notwithstanding the request metadata’s “2010 Q1.”
- Assess comparable-store sales durability and whether store openings, expansions and refrigerated-food rollout sustain growth.
- Track freight, fuel and merchandise-cost trends and their effect on gross margin.
- Review cash generation, inventory movements, capital spending, debt and the pace of share repurchases.
- Monitor the pending employment lawsuits and any developments that could change the company’s assessment of exposure.