~ Diluted Earnings per Share Increased 67.2%
to $1.12 ~
~ Adjusted EPS of $1.14 near Top End of
Guidance Range ~
~ Consolidated Sales of $5.81 Billion;
Enterprise Same-Store Sales Increased 2.2% ~
~ Same-Store Sales by Segment: Dollar Tree
+2.5%, Family Dollar +1.9% ~
~ Company Repurchased $100 Million in Shares
~
~ Initiated Testing of Dollar Tree Plus!
Multi-Price Point Items in Select Dollar Tree Stores ~
Dollar Tree, Inc. (NASDAQ: DLTR), North America's leading
operator of discount variety stores, today reported financial
results for its first quarter ended May 4, 2019.
“I am proud of our team’s efforts throughout the first quarter,”
stated Gary Philbin, President and Chief Executive Officer. “Dollar
Tree delivered a solid 2.5% increase in same-store sales while
cycling its toughest quarterly compare from the prior year; and
Family Dollar again demonstrated a sequential acceleration in comp
sales. Family Dollar’s 1.9% same-store sales increase is the
strongest quarterly performance since we began reporting Family
Dollar comps.”
Philbin continued, “Dollar Tree continues to be a destination
for customers looking for great values and convenience, as
demonstrated by our 45th consecutive quarter of delivering an
increase in same-store sales. And, we are excited to kick off the
initial introduction of Dollar Tree Plus! multi-price point
products into select test stores. These products are designed to
provide our shoppers with More Choices, More Sizes, and More
Savings. We are in the process of expanding this test to more than
100 Dollar Tree stores. Importantly, our Family Dollar turnaround
is gaining traction. Our efforts to accelerate initiatives to
optimize the real estate portfolio are making a difference as
demonstrated by our improving same-store sales results. As
previously communicated, these efforts will increase costs in the
first half of fiscal 2019, and will then contribute to the
opportunity for operating margin expansion as we work through the
back half of this year.”
First Quarter Results
Consolidated net sales increased 4.6% to $5.81 billion from
$5.55 billion in the prior year’s first quarter. Enterprise
same-store sales increased 2.2%. Same-store sales for the Dollar
Tree banner increased 2.5% on a constant currency basis (or 2.4%
when adjusted to include the impact of Canadian currency
fluctuations). Same-store sales for the Family Dollar banner
increased 1.9%.
Gross profit increased 1.6% to $1.73 billion in the quarter
compared to $1.70 billion in the prior year’s first quarter. As a
percentage of sales, gross margin decreased to 29.7% compared to
30.6% in the prior year. The decrease in gross profit margin was
driven by lower initial markup at Family Dollar, higher domestic
freight and distribution costs, shrink in the Family Dollar
segment, and $6.7 million, or $0.02 per diluted share, of increased
occupancy costs related to the accelerated rent expense for Family
Dollar stores scheduled to close in 2019, as a result of the
implementation of the new leasing standard, ASC 842.
Selling, general and administrative expenses were 23.1% of sales
compared to 22.7% of sales in the prior year's first quarter. The
increase was driven by operating and corporate expenses related to
the consolidation of our store support centers, payroll costs
related to our investment in store hourly payroll, and higher legal
fees, partially offset by lower depreciation and amortization costs
as a percentage of sales.
Operating income for the quarter was $385.5 million compared
with $437.6 million in the same period last year and operating
income margin was 6.6% in the current quarter compared to 7.9% in
last year’s quarter.
The Company's effective tax rate for the quarter was 22.1%
compared to 22.6% in the prior year’s first quarter.
Net income compared to the prior year’s quarter increased $107.4
million to $267.9 million and diluted earnings per share increased
67.2% to $1.12 compared to $0.67 in the prior year’s quarter. The
prior year’s quarter included $0.52 per diluted share of debt
refinancing costs. Excluding the $6.7 million in accelerated rent
expense related to ASC 842, which was not included in the Company’s
previous outlook, adjusted diluted earnings per share for the
quarter was $1.14.
The Company repurchased 960,683 shares during the quarter for
$100 million. The Company has $900 million remaining on its share
repurchase authorization plan.
During the quarter, the Company opened 91 stores, expanded or
relocated 11 stores, and closed 16 Family Dollar stores and nine
Dollar Tree stores. Additionally, the Company opened 45 Dollar Tree
stores that were re-bannered from Family Dollar. Retail selling
square footage at quarter end was approximately 120.4 million
square feet.
Family Dollar Update
Store Optimization Program
Update
As announced in March 2019, the Company is currently executing a
store optimization program for its Family Dollar stores to improve
performance. Detailed below is an update on this initiative:
- The Company is rolling out a new model
for both new and renovated Family Dollar stores, referred to as H2.
The Company tested the H2 model in 2018 with positive results. The
H2 model has improved merchandise offerings, including Dollar Tree
$1 merchandise sections, an expanded party assortment and an
expanded number of freezer and cooler doors. H2 stores are
delivering increased traffic with average comparable store sales
increases of greater than 10%. H2 stores perform well in a variety
of locations, and especially in locations where Family Dollar has
been most challenged in the past. The Company entered fiscal 2019
with approximately 200 H2 stores and, as of May 4, 2019, had
approximately 550 H2 stores. The Company plans to renovate at least
1,000 stores in fiscal 2019.
- The Company is taking action to close
under-performing stores. The normal cadence of Family Dollar store
closings on an annual basis is approximately 75 stores. In fiscal
2019, as previously announced, we expect to close as many as 390
stores, the majority of which will take place in the second
quarter.
- The Company plans to re-banner
approximately 200 Family Dollar stores to the Dollar Tree brand in
fiscal 2019.
- Additionally, the Company plans to add
adult beverage product in approximately 1,000 Family Dollar stores
and expand freezers and coolers in approximately 400 Family Dollar
stores in fiscal 2019. In the first quarter, adult beverage product
was added to approximately 45 stores and freezers and coolers were
expanded in approximately 55 stores.
Integration Update
The Company continues to be on track with the consolidation of
its store support centers. This represents an important final step
in the Company’s integration, which is scheduled to be completed in
July 2019. The Company expects this consolidation will greatly
enhance the communication, collaboration and teamwork within the
organization and its ability to support the ongoing growth and
development of the Dollar Tree and Family Dollar brands.
Dollar Tree Plus! Multi-Price
Point Test Update
As previously disclosed in the Company’s Fourth Quarter and
Fiscal Year 2018 earnings announcement, the Company has recently
initiated a test of multi-price points, currently referred to as
Dollar Tree Plus!, at an expanding number of Dollar Tree store
locations. This carefully considered test, leveraging the
merchandising strength and purchasing power of Family Dollar, is
designed to understand how Dollar Tree’s deeply-loyal customers
respond to the addition of merchandise at values greater than
$1.
The Company conducted extensive planning during the first
quarter 2019, including store selection and merchandising for the
test. In mid-May, the Company introduced Dollar Tree Plus!
merchandise into the first stores. The initial test phase is
planned to be expanded to more than 100 urban, suburban and rural
Dollar Tree store locations.
As the Company tests lifting the restriction on the $1 price
point, it is not raising retail on its current assortment of items
priced at $1. Customers will see new Dollar Tree Plus! items added
to the Dollar Tree offering, providing them with great values and
“More Choices, More Sizes, and More Savings.”
Philbin continued, “With its ‘Everything’s a Dollar’ model,
Dollar Tree has remained one of the most unique, differentiated and
defensible brand concepts in all of value retail. However, we have
always been a ‘test-and-learn’ organization that is committed to
evaluating all opportunities to deliver great value for our
customers while driving long-term value creation. During this test,
we look forward to measuring and assessing the initial results and
understanding if the introduction of multiple price points across a
broader set of stores is in the best interests of our customers,
Company and shareholders.”
Company Outlook
The Company estimates consolidated net sales for the second
quarter of 2019 to range from $5.66 billion to $5.76 billion, based
on a low single-digit increase in same-store sales for the combined
enterprise. Diluted earnings per share are estimated to be in the
range of $0.64 to $0.73. This estimate includes approximately $57
million in the second quarter of the $95 million in discrete costs
expected for the year. In addition, the updated outlook now
includes $30 million, or $0.10 per diluted share, of costs related
to second quarter store closures for lease obligations and related
costs that were not included in the Company’s previous outlook.
For fiscal 2019, our guidance includes the expectation that
Section 301 tariffs will be 25% on List 1, 2, and 3 goods. However,
our guidance does not include potential tariffs on List 4
goods.
The Company estimates consolidated net sales for full-year
fiscal 2019 will range from $23.51 billion to $23.83 billion. This
estimate is based on a low single-digit increase in same-store
sales and approximately 1.0% square footage growth. Diluted
earnings per share are expected to range from $4.77 to $5.07, and
include estimated discrete costs of approximately $95 million, or
$0.31 per share, as previously disclosed. Additionally, the updated
full-year outlook includes $30 million, or $0.10 per diluted share,
in store closure costs and $15 million, or $0.05 per diluted share,
in import freight costs related to increased freight rates based on
our April negotiations.
Philbin concluded, “Our merchandising teams have done a
tremendous job of mitigating the effects of 25% tariffs imposed
under Section 301 for Chinese goods included on Lists 1, 2, and 3.
We are uncertain as to whether, or when, tariffs will be applied to
the List 4 products currently being considered by the United States
Trade Representative. If tariffs on List 4 products are
implemented, we expect that it will be impactful to both our
business, and especially to consumers in general. Until we have
more clarity, our outlook excludes the impact of tariffs on List 4
products. Our teams are doing an admirable job of controlling the
controllables in running our business. We continue to believe we
are well-positioned to capture the significant opportunity ahead of
us as we focus on creating and driving value for our
shareholders.”
Conference Call
Information
On Thursday, May 30, 2019, the Company will host a conference
call to discuss its earnings results at 9:00 a.m. Eastern Time. The
telephone number for the call is 800-949-2175. A recorded version
of the call will be available until midnight Wednesday, June 5,
2019, and may be accessed by dialing 888-203-1112. The access code
is 2359201. A webcast of the call is accessible through Dollar
Tree's website and will remain online through Wednesday, June 5,
2019.
Dollar Tree, a Fortune 200 Company, operated 15,264 stores
across 48 states and five Canadian provinces as of May 4, 2019.
Stores operate under the brands of Dollar Tree, Family Dollar, and
Dollar Tree Canada. To learn more about the Company, visit
www.DollarTree.com.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS: Our press release
contains "forward-looking statements" as that term is used in the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements can be identified by the fact that they address future
events, developments or results and do not relate strictly to
historical facts. Any statements contained in this press release
that are not statements of historical facts may be deemed to be
forward-looking statements. Forward-looking statements include,
without limitation, statements preceded by, followed by or
including words such as “believe,” “anticipate,” “expect,”
“intend,” “plan,” “view,” “target” or “estimate,” “may,” “will,”
“should,” “predict,” “possible,” “potential,” “continue,”
“strategy,” and similar expressions. For example, our
forward-looking statements include statements regarding second
quarter 2019 and full-year 2019 results of operations, including
consolidated net sales, expenses, same-store sales, operating
income, diluted earnings per share, operating cash flow and tax
rate; our square footage growth; estimated costs relating to our
initiatives, including the discrete costs, and costs relating to
lease obligations and fixtures in closed stores; our expectations
regarding imposed and proposed tariffs and plans to address or
mitigate the effects of tariffs on our business; the impacts of
increases in wage rates, fuel costs and freight costs on our
business; the timing of and expected annual cost savings from the
completion of our headquarters consolidation; the benefits, results
and effects of the ongoing integration with Family Dollar,
including our estimates of future annual cost savings resulting
from the acquisition and our efforts to make both Company-wide
improvements as well as those targeted at Family Dollar; our plans
and expectations relating to our store optimization program,
including the opening of new stores, renovation of Family Dollar
stores, re-bannering Family Dollar stores to Dollar Tree stores and
closing Family Dollar stores, and the impact of the optimization
program on comparable store sales and profitability; our plans
regarding the testing of multi-price points at certain Dollar Tree
stores; and our other plans, objectives, expectations (financial
and otherwise) and intentions. These statements are subject to
risks and uncertainties. For a discussion of the risks,
uncertainties and assumptions that could affect our future events,
developments or results, you should carefully review the "Risk
Factors," "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections in our
Annual Report on Form 10-K filed March 27, 2019, and other filings
with the Securities and Exchange Commission. We are not obligated
to release publicly any revisions to any forward-looking statements
contained in this press release to reflect events or circumstances
occurring after the date of this report and you should not expect
us to do so.
DOLLAR TREE, INC. Condensed Consolidated
Income Statements (In millions, except per share data)
(Unaudited) 13 Weeks Ended May 4, 2019
May 5, 2018 Net sales $ 5,808.7 $ 5,553.7 Cost
of sales 4,081.5 3,854.1 Gross profit 1,727.2 1,699.6 29.7%
30.6% Selling, general and administrative expenses 1,341.7
1,262.0 23.1% 22.7% Operating income 385.5 437.6 6.6% 7.9%
Interest expense, net 41.4 230.0 Other expense, net 0.2 0.2
Income before income taxes 343.9 207.4 5.9% 3.7%
Provision for income taxes 76.0 46.9 Income tax rate 22.1% 22.6%
Net income $ 267.9 $ 160.5 4.6% 2.9% Net earnings per
share: Basic $ 1.13 $ 0.68 Weighted average number of shares 238.0
237.5 Diluted $ 1.12 $ 0.67 Weighted average number of
shares 239.1 238.5
DOLLAR TREE, INC.
Reconciliation of Non-GAAP Financial Measures (In
millions, except per share data) (Unaudited) From
time-to-time, the Company's financial results include certain
financial measures not derived in accordance with generally
accepted accounting principles ("GAAP"). Non-GAAP financial
measures should not be used as a substitute for GAAP financial
measures, or considered in isolation, for the purposes of analyzing
operating performance, financial position or cash flows. However,
the Company believes providing additional information in the form
of non-GAAP measures that exclude the unusual, non-recurring
expenses outlined below is beneficial to the users of its financial
statements in evaluating the Company's current operating results in
relation to past periods. In addition, the Company's debt covenants
exclude the impact of certain unusual, non-recurring expenses. The
Company has included a reconciliation of this information to the
most comparable GAAP measures in the following tables.
On February 3, 2019, the Company adopted
Financial Accounting Standards Board Accounting Standards Update
No. 2016-2, "Leases (Topic 842)" and subsequent amendments ("ASC
842") which requires lessees to recognize right-of-use assets on
the balance sheet. The Company did not elect the hindsight
practical expedient; therefore, the adoption also resulted in the
recognition of an estimate of the embedded impairment of
right-of-use assets as a reduction to Retained earnings. In March
2019, the Company announced a store optimization program which
includes the closing of up to 390 under-performing stores in 2019.
Under ASC 842, the right-of-use assets must be amortized over the
remaining operating terms which resulted in the acceleration of
rent expense for the stores that the Company plans to close. The
accelerated rent expense net of the rent foregone as a result of
the embedded lease impairment was $6.7 million and this amount will
be excluded in calculating the Company's compliance with its debt
covenants, which requires reporting in accordance with GAAP as of
the date of the Credit Agreement.
In the first quarter of 2018, the Company entered into a new
Credit Agreement that provided a $1,250.0 million revolving credit
facility and a $782.0 million term loan facility. The Company also
announced the registered offering of $750.0 million aggregate
principal amount of Senior Floating Rate Notes due 2020, $1,000.0
million of 3.7% Senior Notes due 2023, $1,000.0 million of 4.0%
Senior Notes due 2025 and $1,250.0 million of 4.2% Senior Notes due
2028. In connection with entry into the new Credit Agreement, the
Company terminated the existing Credit Agreement and paid a
redemption premium of $6.5 million for the early payment of the
Term Loan B-2 Loans. In connection with the offering of the new
Senior Notes, the Company redeemed the 5.75% Senior Notes due 2023
and paid a redemption premium of $107.8 million. In connection with
the termination of the old Credit Agreement and the payment of Term
Loan B-2 and the 5.75% Senior Notes due 2023, the Company
accelerated the expense of approximately $41.2 million of
amortizable non-cash deferred financing costs and expensed
approximately $0.4 million in non-capitalizable transaction costs.
Interest on the new debt was approximately $7.9 million in the
first quarter and the interest foregone on the redemption of Term
Loan A-1 and Term Loan B-2 was approximately $3.3 million.
Reconciliation of Adjusted Net Income: 13
Weeks Ended May 4, 2019 May 5, 2018 Net income
(GAAP) $ 267.9 $ 160.5 Cost of sales adjustment: Accelerated rent
expense 6.7 - Interest expense adjustment: Redemption premium on
2023 Senior Notes - 107.8 Redemption premium on Term Loan B-2 - 6.5
Deferred financing costs acceleration and non-capitalizable
transaction costs - 41.6 Interest expense new Senior Notes - 7.9
Interest expense foregone on redemption of Term Loan A-1 and Term
Loan B-2 - (3.3 ) Provision for income taxes on adjustment
(1.5 ) (36.9 ) Adjusted Net income (Non-GAAP) $ 273.1
$ 284.1
Reconciliation of Adjusted
EPS: 13 Weeks Ended May 4, 2019 May 5,
2018 Diluted earnings per share (GAAP) $ 1.12 $ 0.67
Adjustment, net of tax 0.02 0.52
Adjusted EPS (Non-GAAP) $ 1.14 $ 1.19
DOLLAR TREE, INC. Segment Information (In
millions, except store count) (Unaudited)
13 Weeks Ended May 4, 2019
May 5, 2018 Net sales: Dollar Tree $ 2,959.3 $
2,784.5 Family Dollar 2,849.4 2,769.2 Total net sales
$ 5,808.7 $ 5,553.7
Gross profit: Dollar Tree $
1,021.2 34.5% $ 960.8 34.5% Family Dollar 706.0 24.8%
738.8 26.7% Total gross profit $ 1,727.2 29.7% $ 1,699.6 30.6%
Operating income (loss): Dollar Tree $ 390.9 13.2% $
372.7 13.4% Family Dollar 90.4 3.2% 143.8 5.2% Corporate and
support (95.8) (1.6%) (78.9) (1.4%) Total operating
income $ 385.5 6.6% $ 437.6 7.9%
13 Weeks Ended May 4, 2019 May 5,
2018 Dollar Tree
Family
Dollar
Total Dollar Tree
FamilyDollar
Total Store Count: Beginning 7,001 8,236 15,237 6,650
8,185 14,835 New stores 65 26 91 68 62 130 Re-bannered stores (a)
45 (84 ) (39 ) - (3 ) (3 ) Closings (9 ) (16 ) (25 ) (2 ) (3 ) (5 )
Ending 7,102 8,162 15,264 6,716 8,241
14,957 Selling Square Footage (in millions) 61.2
59.2 120.4 57.9 59.7 117.6
Growth Rate (Square Footage) 5.7 % (0.8 %) 2.4 % 4.3 % 2.6 %
3.4 % (a) Stores are included as re-banners when they close
or open, respectively.
DOLLAR TREE,
INC. Condensed Consolidated Balance Sheets (In
millions) (Unaudited) May 4, February
2, May 5, 2019 2019 2018
Cash and cash equivalents $ 725.8 $ 422.1 $ 475.2
Merchandise inventories 3,325.5 3,536.0 3,248.2 Other current
assets 194.8 335.2 318.6 Total current assets
4,246.1 4,293.3 4,042.0 Property, plant and equipment, net
3,525.0 3,445.3 3,249.7 Restricted cash 24.7 24.6 - Operating lease
right-of-use assets 6,233.1 - - Goodwill 2,295.9 2,296.6 5,024.2
Favorable lease rights, net - 288.7 354.9 Trade name intangible
asset 3,100.0 3,100.0 3,100.0 Other assets 51.6 52.7
56.3 Total assets $ 19,476.4 $ 13,501.2 $ 15,827.1
Current portion of long-term debt $ 750.0 $ - $ -
Current portion of operating lease liabilities 1,202.9 - - Accounts
payable 1,186.5 1,416.4 1,181.5 Income taxes payable 125.2 60.0
81.7 Other current liabilities 701.7 619.3
654.0 Total current liabilities 3,966.3 2,095.7 1,917.2
Long-term debt, net, excluding current portion 3,516.9 4,265.3
5,040.1 Operating lease liabilities, long-term 4,984.6 - -
Unfavorable lease rights, net - 78.8 94.5 Deferred income taxes,
net 954.2 973.2 976.2 Income taxes payable, long-term 35.8 35.4
42.5 Other liabilities 262.7 409.9 400.9
Total liabilities 13,720.5 7,858.3
8,471.4 Shareholders' equity 5,755.9 5,642.9
7,355.7 Total liabilities and shareholders' equity $
19,476.4 $ 13,501.2 $ 15,827.1 The February 2, 2019
information was derived from the audited consolidated financial
statements as of that date.
DOLLAR TREE, INC.
Condensed Consolidated Statements of Cash Flows (In
millions) (Unaudited) 13 Weeks Ended
May 4, May 5, 2019 2018
Cash flows from operating activities: Net income $ 267.9
$ 160.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 151.2 151.5 Provision for deferred
income taxes 3.0 (9.0 ) Amortization of debt discount and
debt-issuance costs 1.6 49.7 Other non-cash adjustments to net
income 33.4 33.6 Loss on debt extinguishment - 114.7 Changes in
operating assets and liabilities 157.0 (113.4
) Total adjustments 346.2 227.1 Net
cash provided by operating activities 614.1
387.6 Cash flows from investing activities: Capital
expenditures (209.2 ) (180.9 ) Proceeds from governmental grant
16.5 - Proceeds from (payments for) fixed asset disposition
0.3 (0.2 ) Net cash used in investing activities
(192.4 ) (181.1 ) Cash flows from financing
activities: Proceeds from long-term debt, net of discount - 4,775.8
Principal payments for long-term debt - (5,432.7 ) Debt-issuance
and debt extinguishment costs - (155.3 ) Proceeds from revolving
credit facility - 50.0 Repayments of revolving credit facility -
(50.0 ) Proceeds from stock issued pursuant to stock-based
compensation plans 5.8 4.6 Cash paid for taxes on exercises/vesting
of stock-based compensation (23.3 ) (21.2 ) Payments for repurchase
of stock (100.0 ) - Net cash used in financing
activities (117.5 ) (828.8 ) Effect of exchange rate
changes on cash, cash equivalents and restricted cash (0.4 )
(0.3 ) Net increase (decrease) in cash, cash equivalents and
restricted cash 303.8 (622.6 ) Cash, cash equivalents and
restricted cash at beginning of period 446.7
1,097.8 Cash, cash equivalents and restricted cash at end of
period $ 750.5 $ 475.2
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190530005413/en/
Dollar Tree, Inc.Randy Guiler, 757-321-5284Vice President,
Investor Relationswww.DollarTree.comDLTR-E
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