~ Consolidated Sales Increased 3.9% to $5.74
Billion ~ ~ GAAP Earnings per Diluted Share of $0.76 vs.
Guidance Range of $0.64 to $0.73 ~ ~ Enterprise Same-Store
Sales Increased 2.4% ~ ~ Same-Store Sales by Segment: Dollar
Tree +2.4%, Family Dollar +2.4% ~ ~ Increasing Fiscal 2019
Family Dollar H2 Renovation Projects from 1,000 to 1,150 ~
Dollar Tree, Inc. (NASDAQ: DLTR), North America's leading
operator of discount variety stores, today reported financial
results for the quarter ended August 3, 2019.
“The turnaround of the Family Dollar business continues to gain
momentum. Family Dollar’s same-store sales increase of 2.4% was the
third consecutive quarter of sequential acceleration and
represented a 160 basis point improvement in the two-year stacked
comp. And, despite sales headwinds created by the global helium
shortage, the Dollar Tree segment delivered a same-store sales
increase of 2.4%, while cycling a strong 3.7% increase from the
prior year’s quarter. Dollar Tree has now delivered 46 consecutive
quarters of positive same-store sales, and eight consecutive
quarters with two-year stacked comps exceeding 6%,” stated Gary
Philbin, President and Chief Executive Officer. “I am proud of the
team’s accomplishments. During the quarter, we successfully
consolidated our store support centers and, as planned, closed 296
Family Dollar stores as part of our store optimization efforts.
Additionally, we completed 542 Family Dollar renovations into the
H2 format.”
Second Quarter Results
Consolidated net sales increased 3.9% to $5.74 billion from
$5.53 billion in the prior year’s second quarter. Enterprise
same-store sales increased 2.4%. Same-store sales for the Dollar
Tree segment increased 2.4% on a constant currency basis (or 2.3%
when adjusted to include the impact of Canadian currency
fluctuations). The Company estimates the helium shortage negatively
impacted Dollar Tree same-store sales by approximately 40 basis
points. Same-store sales for the Family Dollar segment increased
2.4%.
Gross profit was $1.65 billion in the quarter compared to $1.66
billion in the prior year’s second quarter. As a percentage of
sales, gross margin was 28.7% of sales compared to 30.1% of sales
in the prior year. The decrease in gross profit margin was driven
by higher freight costs for both segments, and markdowns and shrink
in the Family Dollar segment.
Selling, general and administrative expenses were 24.0% of sales
compared to 23.2% of sales in the prior year's second quarter. The
increase was driven by operating and corporate expenses related to
the consolidation of the Company’s store support centers, asset
write-offs for closed stores, and payroll costs resulting from
higher average hourly rates and store-level initiatives.
Operating income for the quarter was $268.9 million compared
with $382.5 million in the same period last year and operating
income margin was 4.7% of sales in the second quarter compared to
6.9% of sales in last year’s quarter.
Net income was $180.3 million in the second quarter and GAAP
diluted earnings per share for the quarter were $0.76 compared to
$1.15 in the prior year’s quarter.
The Company repurchased 881,624 shares during the quarter for
$88.4 million. The Company has approximately $812 million remaining
on its share repurchase authorization.
During the quarter, the Company opened 150 new stores, expanded
or relocated 19 stores, and closed 296 Family Dollar stores and
nine Dollar Tree stores. The Family Dollar store closings related
to the Company’s previously announced store optimization efforts.
Additionally, the Company opened 106 Dollar Tree stores that were
re-bannered from Family Dollar. Retail selling square footage at
quarter end was approximately 119.7 million square feet.
First Six Months Results
Consolidated net sales increased 4.2% to $11.55 billion from
$11.08 billion in the same period last year. Enterprise same-store
sales increased 2.3% on a constant currency basis (or 2.2% when
adjusted to include the impact of Canadian currency fluctuations).
Same-store sales for the Dollar Tree segment increased 2.4%.
Same-store sales for Family Dollar increased 2.1%.
Gross profit for the first six months increased $12.2 million to
$3.38 billion. As a percentage of sales, gross margin was 29.2%,
compared to 30.4% in the prior year period.
Selling, general and administrative expenses were 23.6% of sales
compared to 23.0% of sales for the first six months of 2018.
Operating income for the period was $654.4 million. Operating
income margin decreased to 5.7% of sales in the current year period
from 7.4% of sales in the prior year.
Net income compared to the prior year's period increased 3.2% to
$448.2 million and GAAP diluted earnings per share increased 3.3%
to $1.88 compared to $1.82 in the prior year’s period.
Update on Fiscal 2019 Discrete
Costs
The Company’s initial outlook for the year included discrete
costs related to the Company’s store support center consolidation
and the acceleration of store optimization initiatives, including
renovations, re-banners, and store closures. The Company has
incurred approximately $76 million of discrete costs in the first
half of the year, of which $48 million, or $0.16 per diluted share,
was incurred in the second quarter. With the increased visibility
of initiative-related costs, the Company now expects to incur a
total of $85 million of discrete costs for fiscal 2019. The
Company’s updated outlook includes the remaining estimated $9
million, or $0.03 per diluted share, of discrete costs expected to
be incurred in the third quarter of fiscal 2019.
Additionally, the Company previously expected to incur
approximately $30 million of lease obligation and related closure
costs in the second quarter related to Family Dollar closed stores.
Based on recent interpretations of the lease accounting standard,
certain lease obligation costs the Company expected to accrue in
the quarter are now treated as period costs. The Company’s second
quarter included approximately $15 million, or $0.05 per diluted
share, of costs for store closure asset write-offs and related
costs.
Tariff Update
Earlier this year, the United States Trade Representative (USTR)
began a process to impose a tariff on all of the $300 billion in
Chinese goods which were not previously subject to a tariff under
Section 301, referred to as List 4 goods.
On August 13, 2019, the USTR published the final description of
products on List 4 and divided the list into two parts. Tariffs at
the rate of ten percent (10%) on List 4A goods will go into effect
September 1, 2019. Tariffs at the rate of ten percent (10%) on List
4B goods will go into effect December 15, 2019.
On August 23, 2019, the USTR announced that tariffs on List 1,
2, and 3 products would increase from 25% to 30% on October 1,
2019, tariffs on List 4A products would increase from 10% to 15% on
September 1, 2019, and tariffs on List 4B products would increase
from 10% to 15% on December 15, 2019. The Company estimates that
without mitigation List 4A and the additional 5% tariff on Lists 1,
2, and 3 would cost the Company approximately $26 million in
additional tariffs between September 1, 2019 and December 15,
2019.
Prior to the recent announcements on List 4 as well as the
additional 5% tariff increase on all Lists, the Company believes it
has successfully mitigated most of the adverse effects of the
Section 301 tariffs. The Company has negotiated price concessions,
cancelled orders, modified specifications, evolved product mix, and
diversified vendors. The Company is now implementing actions that
may mitigate the recently announced tariff increases, and will
continue to assess the future impact of those tariffs.
Company Outlook
The Company estimates consolidated net sales for the third
quarter of 2019 will range from $5.66 billion to $5.77 billion,
based on a low single-digit increase in same-store sales for the
enterprise. Diluted earnings per share are estimated to be in the
range of $1.07 to $1.16. This estimate includes approximately $9
million, or $0.03 per diluted share, of discrete costs.
Consolidated net sales for full-year fiscal 2019 are now
expected to range from $23.57 billion to $23.79 billion compared to
the Company’s previously expected range of $23.51 billion to $23.83
billion. This estimate is based on a low single-digit increase in
same-store sales and 1.3% selling square footage growth. The
Company now anticipates net income per diluted share for full-year
fiscal 2019 will range between $4.90 and $5.11. The Company’s
updated outlook does not include the recently announced tariff
increases, as the Company is currently working to mitigate these
costs.
“I am very pleased with the traction and momentum we are seeing
in the Family Dollar business. The team’s efforts to improve the
consistency of execution across the store base and our acceleration
of initiatives to optimize the real estate portfolio are paying
off. We are increasing our planned Family Dollar H2 renovations for
fiscal 2019 by 150 stores, most of which will occur in the third
quarter,” Philbin added. “We are thrilled to now be operating from
one consolidated store support center. One workspace should
materially enhance alignment, communication, and efficiency, as
well as our ability to support stores more effectively. Our focus
continues to be to grow and improve our business to deliver
increased value to long-term shareholders.”
Conference Call
Information
On Thursday, August 29, 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 888-394-8218. A recorded version
of the call will be available until midnight Wednesday, September
4, 2019, and may be accessed by dialing 888-203-1112. The access
code is 6531689. A webcast of the call is accessible through Dollar
Tree's website and will remain online through Wednesday, September
4, 2019.
Dollar Tree, a Fortune 200 Company, operated 15,115 stores
across 48 states and five Canadian provinces as of August 3, 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 third
quarter 2019 and full-year 2019 results of operations, including
consolidated net sales, expenses, same-store sales, operating
income, and 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 26 Weeks
Ended August 3, 2019 August 4, 2018 August 3,
2019 August 4, 2018 Net sales
$
5,740.6
$
5,525.6
$
11,549.3
$
11,079.3
Cost of sales
4,092.1
3,861.7
8,173.6
7,715.8
Gross profit
1,648.5
1,663.9
3,375.7
3,363.5
28.7%
30.1%
29.2%
30.4%
Selling, general and administrative expenses
1,379.6
1,281.4
2,721.3
2,543.4
24.0%
23.2%
23.6%
23.0%
Operating income
268.9
382.5
654.4
820.1
4.7%
6.9%
5.7%
7.4%
Interest expense, net
40.1
46.1
81.5
276.1
Other expense (income), net
0.4
(1.3
)
0.6
(1.1
)
Income before income taxes
228.4
337.7
572.3
545.1
4.0%
6.1%
5.0%
4.9%
Provision for income taxes
48.1
63.8
124.1
110.7
Income tax rate
21.1%
18.9%
21.7%
20.3%
Net income
$
180.3
$
273.9
$
448.2
$
434.4
3.1%
5.0%
3.9%
3.9%
Net earnings per share: Basic
$
0.76
$
1.15
$
1.88
$
1.83
Weighted average number of shares
237.6
237.9
237.8
237.7
Diluted
$
0.76
$
1.15
$
1.88
$
1.82
Weighted average number of shares
238.3
238.6
238.7
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 $1.25 billion 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, $1.0 billion of 3.7% Senior Notes due 2023,
$1.0 billion of 4.0% Senior Notes due 2025 and $1.25 billion 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 of 2018 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:
26 Weeks Ended
August 3, 2019
August 4, 2018
Net income (GAAP)
$
448.2
$
434.4
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)
$
453.4
$
558.0
Reconciliation of Adjusted EPS: 26 Weeks
Ended August 3, 2019 August 4, 2018 Diluted
earnings per share (GAAP)
$
1.88
$
1.82
Adjustment, net of tax
0.02
0.52
Adjusted EPS (Non-GAAP)
$
1.90
$
2.34
DOLLAR TREE, INC. Segment Information (In
millions, except store count) (Unaudited)
13 Weeks Ended
26 Weeks Ended
August 3, 2019
August 4, 2018
August 3, 2019
August 4, 2018
Net sales: Dollar Tree
$
2,957.7
$
2,768.8
$
5,917.1
$
5,553.2
Family Dollar
2,782.9
2,756.8
5,632.2
5,526.1
Total net sales
$
5,740.6
$
5,525.6
$
11,549.3
$
11,079.3
Gross profit: Dollar Tree
$
999.0
33.8%
$
955.3
34.5%
$
2,020.2
34.1%
$
1,916.1
34.5%
Family Dollar
649.5
23.3%
708.6
25.7%
1,355.5
24.1%
1,447.4
26.2%
Total gross profit
$
1,648.5
28.7%
$
1,663.9
30.1%
$
3,375.7
29.2%
$
3,363.5
30.4%
Operating income (loss): Dollar Tree
$
334.0
11.3%
$
330.8
11.9%
$
725.0
12.3%
$
703.5
12.7%
Family Dollar
15.4
0.6%
113.6
4.1%
105.7
1.9%
257.5
4.7%
Corporate and support
(80.5
)
(1.4%
)
(61.9
)
(1.1%
)
(176.3
)
(1.5%
)
(140.9
)
(1.3%
)
Total operating income
$
268.9
4.7%
$
382.5
6.9%
$
654.4
5.7%
$
820.1
7.4%
13 Weeks Ended
26 Weeks Ended
August 3, 2019
August 4, 2018
August 3, 2019
August 4, 2018
Dollar Tree
Family Dollar
Total
Dollar Tree
Family Dollar
Total
Dollar Tree
Family Dollar
Total
Dollar Tree
Family Dollar
Total
Store Count: Beginning
7,102
8,162
15,264
6,716
8,241
14,957
7,001
8,236
15,237
6,650
8,185
14,835
New stores
107
43
150
82
64
146
172
69
241
150
126
276
Re-bannered stores (a)
106
(100
)
6
17
(21
)
(4
)
151
(184
)
(33
)
17
(24
)
(7
)
Closings
(9
)
(296
)
(305
)
(3
)
(23
)
(26
)
(18
)
(312
)
(330
)
(5
)
(26
)
(31
)
Ending
7,306
7,809
15,115
6,812
8,261
15,073
7,306
7,809
15,115
6,812
8,261
15,073
Selling Square Footage (in millions)
62.9
56.8
119.7
58.7
59.8
118.5
62.9
56.8
119.7
58.7
59.8
118.5
Growth Rate (Square Footage)
7.2%
(5.0%
)
1.0%
4.6%
2.4%
3.5%
7.2%
(5.0%
)
1.0%
4.6%
2.4%
3.5%
(a) Stores are included as re-banners when they close or
open, respectively.
DOLLAR TREE, INC. Condensed
Consolidated Balance Sheets (In millions)
(Unaudited)
August 3,
February 2,
August 4,
2019
2019
2018
Cash and cash equivalents
$
623.4
$
422.1
$
647.3
Merchandise inventories
3,470.9
3,536.0
3,288.2
Other current assets
246.5
335.2
337.3
Total current assets
4,340.8
4,293.3
4,272.8
Property, plant and equipment, net
3,666.2
3,445.3
3,316.1
Restricted cash
24.9
24.6
-
Operating lease right-of-use assets
6,014.3
-
-
Goodwill
2,296.3
2,296.6
5,023.9
Favorable lease rights, net
-
288.7
334.5
Trade name intangible asset
3,100.0
3,100.0
3,100.0
Other assets
51.3
52.7
56.3
Total assets
$
19,493.8
$
13,501.2
$
16,103.6
Current portion of long-term debt
$
750.0
$
-
$
-
Current portion of operating lease liabilities
1,215.0
-
-
Accounts payable
1,455.4
1,416.4
1,241.7
Income taxes payable
-
60.0
14.1
Other current liabilities
673.6
619.3
651.6
Total current liabilities
4,094.0
2,095.7
1,907.4
Long-term debt, net, excluding current portion
3,518.6
4,265.3
5,041.8
Operating lease liabilities, long-term
4,767.4
-
-
Unfavorable lease rights, net
-
78.8
89.2
Deferred income taxes, net
960.2
973.2
976.0
Income taxes payable, long-term
30.1
35.4
30.1
Other liabilities
257.8
409.9
411.6
Total liabilities
13,628.1
7,858.3
8,456.1
Shareholders' equity
5,865.7
5,642.9
7,647.5
Total liabilities and shareholders' equity
$
19,493.8
$
13,501.2
$
16,103.6
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)
26 Weeks Ended
August 3,
August 4,
2019
2018
Cash flows from operating activities: Net income
$
448.2
$
434.4
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
306.3
304.0
Provision for deferred income taxes
9.0
(9.4
)
Amortization of debt discount and debt-issuance costs
3.3
51.7
Other non-cash adjustments to net income
61.4
49.1
Loss on debt extinguishment
-
114.7
Changes in operating assets and liabilities
15.8
(175.7
)
Total adjustments
395.8
334.4
Net cash provided by operating activities
844.0
768.8
Cash flows from investing activities: Capital expenditures
(502.5
)
(394.3
)
Proceeds from governmental grant
16.5
-
Payments for fixed asset disposition
(2.7
)
(0.4
)
Net cash used in investing activities
(488.7
)
(394.7
)
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
9.1
10.2
Cash paid for taxes on exercises/vesting of stock-based
compensation
(23.9
)
(21.7
)
Payments for repurchase of stock
(139.2
)
-
Net cash used in financing activities
(154.0
)
(823.7
)
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
0.3
(0.9
)
Net increase (decrease) in cash, cash equivalents and restricted
cash
201.6
(450.5
)
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
$
648.3
$
647.3
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190829005357/en/
Dollar Tree, Inc. Randy Guiler, 757-321-5284 Vice President,
Investor Relations www.DollarTree.com DLTR-E
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