Dollar Tree, Inc. Reports Results for the Fourth Quarter and Fiscal Year 2018

~ Consolidated Sales of $6.21 Billion; Enterprise Same-Store Sales
Increased 2.4% ~

~ Same-Store Sales by Segment: Dollar Tree +3.2%, Family Dollar +1.4%
~

~ Accelerates Plans for Improving Family Dollar Performance; Takes
Non-Cash Charge against Acquisition Goodwill ~

~ Plans New Round of Testing of Multi-Price Points at Select Dollar
Tree Stores While Reiterating Brand’s Value Commitment to Core Customer
Base ~

CHESAPEAKE, Va.–(BUSINESS WIRE)–Dollar Tree, Inc. (NASDAQ: DLTR), North America’s leading operator of
discount variety stores, today reported financial results for its fourth
quarter and fiscal year ended February 2, 2019.

“Sales for the quarter were strong,” stated Gary Philbin, President and
Chief Executive Officer. “Our results demonstrate the increasing
strength of the Dollar Tree brand, and accelerated progress on the
Family Dollar turnaround, as Family Dollar delivered its strongest
quarterly same-store sales growth of the year.”

Philbin continued, “We are confident in our progress and we have good
momentum. Our merchants at both banners have delivered a 2019 plan that
we believe overcomes most of the effect of tariffs at the 25% level, and
provides opportunity for margin improvements if tariffs are not
increased. We moved aggressively in the fourth quarter to optimize
Family Dollar’s performance, including closing 84 stores and announcing
plans to renovate at least 1,000 stores in 2019. The renovated stores
will include new $1.00 Dollar Tree merchandise sections. Approximately
200 Family Dollar stores will be re-bannered to Dollar Tree, and we plan
to close as many as 390 Family Dollar stores this year. We also recorded
an inventory reserve in part because of the different inventory needs of
this new optimized store base. Excluding this markdown and the non-cash
goodwill impairment charge related to Family Dollar, the combined
companies performed well in the quarter.”

Fourth Quarter Results

In the fourth quarter, the Company incurred several discrete charges, as
described below:

  • Based on the Company’s strategic and operational reassessment of the
    Family Dollar segment, management determined there were indicators
    that the goodwill of the business may be impaired. Accordingly, a
    goodwill impairment test was performed in the fourth quarter of fiscal
    2018. The results of the impairment test showed that the fair value of
    the Family Dollar business was lower than the carrying value resulting
    in a $2.73 billion non-cash pre-tax and after-tax goodwill impairment
    charge.
  • $40.0 million SKU rationalization markdown reserve related to the
    Family Dollar segment.
  • $13.0 million non-cash impairment of certain store assets.
  • $1.5 million acceleration in non-cash deferred financing costs
    associated with the prepayment of the Company’s $782 million term loan
    facility.

Discrete items, or adjustments, for fiscal 2018 and 2017 are included in
the Reconciliation of Non-GAAP Financial Measures within the tables of
this earnings release.

For the fourth quarter, including the impact of each of the items listed
above, the Company reported a GAAP loss per share of $9.66. Adjusted
earnings per share for the quarter, excluding the impact of the
identified items, was $1.93, near the high end of the Company’s guidance
range.

Consolidated net sales for the thirteen-week fourth quarter 2018 were
$6.21 billion, compared to $6.36 billion in the prior year’s fourth
quarter, which included fourteen weeks. Excluding $406.6 million of
sales from the extra week in the prior year’s quarter, consolidated net
sales increased 4.2%. On a constant currency basis, enterprise
same-store sales increased 2.4% (or 2.3% when adjusted to include the
impact of Canadian currency fluctuations). Same-store sales for the
Dollar Tree banner increased 3.2% on a constant currency basis (or 3.1%
when adjusted to include the impact of Canadian currency fluctuations).
Same-store sales for the Family Dollar banner increased 1.4%.

Gross profit for the quarter was $1.91 billion, compared to $2.10
billion in the prior year’s fourteen-week quarter. As a percentage of
sales, gross margin decreased to 30.8% compared to 33.0% in the prior
year. The decline was driven primarily by higher markdowns, including a
$40.0 million SKU rationalization markdown reserve at Family Dollar,
domestic freight, shrink, distribution costs, and occupancy costs which
de-levered due to cycling the extra week in the prior year’s fourth
quarter, partially offset by lower merchandise costs.

Selling, general and administrative expenses for the quarter, including
discrete charges, were 65.4% of sales compared to 21.0% of sales in the
prior year’s fourth quarter. Excluding the discrete charges from the
current year’s quarter and the receivable recovery and workers
compensation reserve from the prior year’s quarter, selling, general and
administrative expenses were flat at 21.3% of sales for the current and
prior year’s quarters.

Including discrete charges, operating loss for the quarter was $2.15
billion compared with operating income of $765.6 million in the same
period last year. Excluding the discrete charges from the current year’s
quarter and the receivable recovery and workers compensation reserve
from the prior year’s quarter, operating income for the quarter was
$632.6 million compared with $743.2 million in the same period last year
and adjusted operating income margin was 10.2% in the current quarter
compared to 11.7% of sales in last year’s fourteen-week quarter.

The Company’s effective tax rate for the quarter was 5.1% compared to a
benefit of 50.4% in the prior year period. The rate in 2018 is the
result of the goodwill impairment charge not being tax deductible. The
prior year benefit was the result of the Tax Cuts and Jobs Act (“TCJA”).
Among other changes to existing tax laws, the TCJA reduced the federal
corporate tax rate from 35% to 21% effective January 1, 2018. The
effective tax rate for the prior year’s quarter included a $562.0
million non-cash benefit resulting from the re-measurement of the
Company’s net deferred tax liabilities to reflect the lower statutory
rate of 21%. The total benefit from the TCJA for the fourth quarter of
fiscal 2017 was $583.7 million.

Net loss for the quarter, including discrete charges, was $2.31 billion
and GAAP diluted loss per share was $9.66 compared to diluted earnings
per share of $4.37 in the prior year’s quarter. On an adjusted basis,
diluted earnings per share increased 2.1% to $1.93 compared to an
adjusted $1.89 in the prior year’s fourteen week-quarter. The extra week
in the fourth quarter of 2017 contributed $0.21 to earnings. On a
comparable 13-week basis, adjusted diluted earnings per share increased
14.9%.

During the quarter, the Company opened 143 stores, expanded or relocated
14 stores, and closed 84 Family Dollar stores and 10 Dollar Tree stores.
Additionally, the Company opened five Dollar Tree stores that were
re-bannered from Family Dollar. Retail selling square footage at quarter
end was approximately 120.1 million square feet.

Full Year Results

Consolidated net sales for the 52-week fiscal 2018 increased 2.6% to
$22.82 billion from $22.25 billion in the 53-week fiscal 2017. Excluding
$406.6 million of sales from the prior year’s 53rd week, consolidated
net sales increased 4.5%. Enterprise same-store sales increased 1.7%.
Same-store sales for the Dollar Tree banner increased 3.3%. Same-store
sales for the Family Dollar banner increased 0.1%.

Gross profit decreased by $74.4 million to $6.95 billion in fiscal 2018
compared to $7.02 billion in the prior year’s 53-week period. As a
percentage of sales, gross margin decreased to 30.4% from 31.6% in the
prior year.

Selling, general and administrative expenses, including discrete
charges, were 34.5% of sales compared to 22.6% of sales in the prior
year. Excluding adjustments in both periods, selling, general and
administrative expenses were 22.6% of sales for fiscal 2018 and 22.4% of
sales for fiscal 2017.

GAAP operating loss in fiscal 2018 was $939.5 million compared to
operating income of $2.00 billion in fiscal 2017. Excluding the discrete
charges from the current year and the net receivable recovery and
workers compensation reserve from the prior year, adjusted operating
income was $1.84 billion in fiscal 2018 compared with $2.03 billion in
fiscal 2017 and adjusted operating income margin was 8.1% in fiscal 2018
compared to 9.1% of sales in the 53-week fiscal 2017.

Net interest expense was $370.0 million in fiscal 2018 compared to
$301.8 million in the prior year. The increase is due to the prepayment
premiums paid during the first quarter of 2018 of $107.8 million and
$6.5 million related to the redemption of the 5.75% Senior Notes due
2023 and Term Loan B-2, respectively. Also, in connection with the debt
refinancing in the first quarter of 2018, the expensing of approximately
$41.2 million of amortizable non-cash deferred financing costs was
accelerated and with the early payment of the $782.0 million term loan
facility in the fourth quarter of 2018, the expensing of an additional
$1.5 million in deferred financing costs was accelerated in fiscal 2018.
These increases were partially offset by lower interest expense,
subsequent to the refinancing, in the second, third and fourth quarters
of fiscal 2018.

The Company’s effective tax rate for the year was 21.5% compared to a
benefit of 0.6% in the prior year. The rate in 2018 is the result of the
goodwill impairment charge not being tax deductible. The prior year
benefit was the result of the TCJA.

Net loss, including discrete charges, for fiscal 2018 was $1.59 billion
and GAAP diluted loss per share was $6.66 compared to diluted earnings
per share of $7.21 in the prior year. On an adjusted basis, diluted
earnings per share increased 12.1% to $5.45 compared to an adjusted
$4.86 in the 53-week fiscal 2017. Please see the Reconciliation of
Non-GAAP Financial Measures for the detail on adjustments.

Family Dollar Update

Philbin added, “Since the merger, we have prepaid $4.3 billion dollars
of debt, captured significant synergies in both brands, and fully
integrated most systems, functions and departments across banners. By
July, we will complete the most important phase: unifying our
headquarters under one roof in Virginia. With these improvements behind
us coupled with an investment grade debt rating and expected operating
cash flow, before capital expenditures, of approximately $2.0 billion in
2019, we are in an ideal spot to accelerate our initiatives to position
the Family Dollar and Dollar Tree banners for success.”

2019 Store Optimization Program

  • After continued development, experimentation and testing, the Company
    is very pleased to roll out a new model for both new and renovated
    Family Dollar stores internally known as H2. This new H2 model has
    significantly improved merchandise offerings, including Dollar Tree
    $1.00 merchandise, throughout the store. H2 has produced increased
    traffic and provided an average comparable store sales lift in excess
    of 10% over control stores. H2 performs well in a variety of
    locations, and especially in locations where Family Dollar has in the
    past been the most challenged. The Company plans to renovate at least
    1,000 of these stores this year and will pursue an accelerated
    renovation schedule in future years.
  • The Company closed 84 under-performing stores in the fourth quarter –
    closing 37 more than originally planned for the year. In fiscal 2019,
    the Company is seeking to obtain material rent concessions from
    landlords on under-performing stores. Without such concessions, the
    Company expects to accelerate its pace of store closings to as many as
    390 stores in fiscal 2019 (compared to the banner’s normal annual
    closing cadence of approximately 75 stores).
  • The Company plans to re-banner approximately 200 Family Dollar stores
    to the Dollar Tree banner in 2019.
  • Additionally, the Company plans to install adult beverages in
    approximately 1,000 stores and expand freezers and coolers in
    approximately 400 stores.

The actions taken in 2019 under the Store Optimization Program alone are
expected to provide a comparable store sales lift of up to 1.5% once
they have been implemented by the end of fiscal 2019.

Integration Update

Nearly all systems, functions and departments at Family Dollar and
Dollar Tree have been substantially integrated with the primary
exceptions of merchandising, store operations, and loss prevention. Real
estate, supply chain, strategic planning, global sourcing, information
technology, store development, finance, human resources, inventory
management, and legal have been integrated to a significant degree.
These integrations have resulted in annual savings exceeding $50
million, with another $15 million in expected annual savings upon
completion of campus consolidation.

The acquisition of Family Dollar has contributed significantly to the
Dollar Tree banner’s increasing profitability. The re-bannered Family
Dollar stores have improved Dollar Tree’s profitability by more than $55
million per year, which we expect to increase as more Family Dollar
stores are re-bannered. The Dollar Tree banner has benefitted from
combining its purchasing power with Family Dollar. Annual savings for
the Dollar Tree banner are estimated to be more than $60 million in
indirect procurement (including capital expenditures), and more than $70
million in initial merchandise cost. The Company expects to benefit from
future savings as well as from other ongoing initiatives and business
improvements. These savings have helped to offset investments in the
business, such as improved merchandise values and increased store labor,
and cost increases such as wage rates, fuel costs, and freight charges
due to the driver shortage, which also impact Family Dollar and the
retail sector more broadly.

As part of Dollar Tree, the Family Dollar banner has benefited from more
than $145 million in estimated annual savings for indirect procurement
(including capital expenditures) and more than $100 million in initial
merchandise cost. As a percentage of sales, Family Dollar has decreased
its initial merchandise cost by approximately 1.53% from fiscal 2015 to
fiscal 2018. The Company has reinvested much of these savings into the
business through price reductions at stores, increased merchandise
value, and increased staffing. The savings have also been offset by
higher costs of items included in the gross margin calculation, such as
distribution, shrink, freight and fuel. The Company expects the merger
to result in continued savings in the future.

Dollar Tree Price Test

The Company continues to believe that the Dollar Tree banner has one of
the most unique, differentiated and defensible brand concepts in all of
value retail. The one-dollar fixed-price point has been a critical
element of Dollar Tree’s success, generating deep customer loyalty and
strong historical performance. While the Company will not undermine this
important value proposition for customers, testing new initiatives is an
essential component of the Company’s ability to evolve and provide the
best customer experience, including multi-price point testing, which has
been done on prior occasions.

The ability to test multi-price points is enhanced by Family Dollar. The
merchandise team at Family Dollar has the expertise and purchasing power
to purchase high value multi-price merchandise for these test stores.

Company Outlook

In fiscal 2019, the Company will be accelerating its store optimization
program, and currently expects to renovate at least 1,000 Family Dollar
stores. The Company plans to open 350 new Dollar Tree and 200 new Family
Dollar stores, as well as re-bannering an additional 200 Family Dollar
stores to Dollar Tree stores. The Company also expects to accelerate its
pace of Family Dollar store closings by closing as many as 390
additional under-performing stores. The total number of stores closed
may change depending on the Company’s ability to achieve material rent
concessions from landlords.

The Company estimates consolidated net sales for the first quarter of
2019 to range from $5.74 billion to $5.85 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 $1.05 to
$1.15.

For fiscal 2019, our guidance is based on the expectation that Section
301 tariffs would move to 25% in March 2019. If these tariffs do not
move to 25%, we expect to see margin benefit in the second half of
fiscal 2019.

The Company estimates consolidated net sales will range from $23.45
billion to $23.87 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 $4.85 to
$5.25, and includes discrete costs of approximately $95 million, or
$0.31 per share. Diluted earnings per share in fiscal 2019 are also
burdened by approximately $0.18 due to the expected tax rate being 22.6%
as compared to 19.9%, excluding the goodwill impairment charge, in
fiscal 2018.

The $95 million in discrete costs are related to the following
initiatives:

  • $37 million of Store Support Center consolidation costs,
  • $30 million of incremental initiative costs based on project count and
    velocity, and
  • $28 million of store closure costs.

These initiative-related costs are expected to be incurred
disproportionately, as approximately 75% will be incurred in the first
half and 25% in second half of fiscal 2019, as the Company targets
completing the majority of the initiatives by the end of August 2019.

Due to the costs associated with these initiatives, year-over-year
operating income is expected to be lower in the first half of fiscal
2019, but is expected to show material improvement in the second half,
as the initiatives gain traction. Additionally, we believe that these
initiatives will drive business and provide the platform for an
accelerated improvement in earnings in fiscal 2020, when the Company’s
earnings per share are expected to grow 14% to 18% over reported fiscal
2019 earnings per share.

Philbin concluded, “Our Dollar Tree business has continued to perform
extremely well. It’s a concept our customers love, as validated by our
streak of 44 consecutive quarters of comp sales growth. We are confident
we are taking the appropriate steps to reposition our Family Dollar
brand for increasing profitability as business initiatives gain traction
in the back half of fiscal 2019. Improving the consistency of execution
and optimizing our real estate portfolio will contribute to a meaningful
improvement in our shoppers’ in-store experience and store traffic. We
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 Wednesday, March 6, 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 800-667-5617. A recorded version of the call will
be available until midnight Tuesday, March 12, 2019, and may be accessed
by dialing 888-203-1112. The access code is 9281767. A webcast of the
call is accessible through Dollar Tree’s website and will remain online
through Tuesday, March 12, 2019.

Dollar Tree, a Fortune 200 Company, operated 15,237 stores across 48
states and five Canadian provinces as of February 2, 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 2020 earnings
per share growth, first 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; our expectations regarding
tariff increases and plans to address 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/A filed March 26, 2018, 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 Statements of Operations
(In millions, except per share data)
 
 
13 Weeks

Ended

14 Weeks

Ended

52 Weeks

Ended

53 Weeks

Ended

February 2,

2019

February 3,

2018

February 2,

2019

February 3,

2018

(Unaudited) (Unaudited) (Unaudited)
 
Net sales $ 6,205.2 $ 6,360.6 $ 22,823.3 $ 22,245.5
 
Cost of sales 4,293.1 4,259.6 15,875.8 15,223.6
 
Gross profit 1,912.1 2,101.0 6,947.5 7,021.9
30.8% 33.0% 30.4% 31.6%
 

Selling, general & administrative expenses, excluding Goodwill
impairment and Receivable impairment

1,332.5 1,370.4 5,160.0 5,004.3
21.5% 21.5% 22.6% 22.5%
 
Goodwill impairment 2,727.0 2,727.0
43.9% 0.0% 11.9% 0.0%
 
Receivable impairment (35.0) 18.5
0.0% (0.5%) 0.0% 0.1%
 
Selling, general & administrative expenses 4,059.5 1,335.4 7,887.0 5,022.8
65.4% 21.0% 34.5% 22.6%
 
Operating income (loss) (2,147.4) 765.6 (939.5) 1,999.1
(34.6%) 12.0% (4.1%) 9.0%
 
Interest expense, net 46.3 81.6 370.0 301.8
Other expense (income), net 0.4 (7.5) (0.5) (6.7)
 
Income (loss) before income taxes (2,194.1) 691.5 (1,309.0) 1,704.0
(35.4%) 10.9% (5.7%) 7.7%
 
Provision for income taxes 112.9 (348.6) 281.8 (10.3)
Income tax rate 5.1% (50.4%) 21.5% (0.6%)
 
Net income (loss) $ (2,307.0) $ 1,040.1 $ (1,590.8) $ 1,714.3
(37.2%) 16.4% (7.0%) 7.7%
 
Net earnings (loss) per share:
Basic $ (9.69) $ 4.38 $ (6.69) $ 7.24
Weighted average number of shares 238.0 237.2 237.9 236.8
 
Diluted $ (9.66) $ 4.37 $ (6.66) $ 7.21
Weighted average number of shares 238.9 238.2 238.7 237.7
 

The 53 weeks ended February 3, 2018 information was derived from
the audited consolidated financial statements as of that date.

 

Contacts

Dollar Tree, Inc.
Randy Guiler, 757-321-5284
Vice President,
Investor Relations
www.DollarTree.com
DLTR-E

Read full story here

error: Content is protected !!