Dollar Tree had record earnings for the Q2. Sales in consumer goods grew at a faster pace than other categories. Consumer goods have lower margin but higher inventory turns. Dollar Tree tries to balance consumer goods with variety goods, which are the discretionary fun and seasonal product that provides higher margins.
Inventory turns increased in the second quarter.
Dollar Tree's growth strategy is to open more stores, develop and expand new formats and develop new markets and new channels.
In Q2, Dollar Tree opened 77 new stores and relocated and expanded 21 stores. Selling square footage increased by 7.1 percent. At the end of Q2, Dollar Tree had 4,523 stores. It is on track to open 315 new stores and relocate 75 stores in fiscal year 2012.
In July, Dollar Tree opened a new distribution center in Windsor, Connecticut to aid in Dollar Tree's expansion in the northeast.
Dollar Tree continues to expand refrigerated and frozen products, which are now offered at 2,403 stores. It anticipates expanding the products to another 138 stores by the end of the year.
Customers are responding favorably to Dollar Tree's Deals strategy, which has lifted the $1 price point on everyday essentials, party goods, seasonal and home products. Traffic, average ticket and average unit retail increased at its Deals stores. Dollar Tree currently had 190 Deals stores. The profitability of the Deals stores is still lower than Dollar Tree stores; however, revenue is growing.
Dollar Tree continues to integrate the Canadian Dollar Giant stores that it acquired in 2010. Its goal is to become the largest Canadian retailer at the $1.25 price point. It planned to expand the Canadian Dollar Tree stores by 25 percent in 2012 and it will likely exceed that goal. It currently has 117 Canadian stores and believes it can ultimately have 1,000 Canadian stores. It will be rebranding all the Dollar Giant stores to Dollar Tree stores.
Dollar Tree Direct, the company's online business, continues to expand and now offers 2,500 items. Online traffic increased by 14 percent in Q2.
Dollar Tree is still seeing purchases around the paycheck cycle, which is a trend it has seen for several years. Debit and credit card penetration is continuing to increase and is approximately 37 to 38 percent of the total mix. Credit card use is flat, while debit card use is growing.
Dollar Tree is not seeing any impact in California from the entry of Dollar General in the market. It believes Dollar General has a different model and a different customer.
The company is not seeing any increase in closeouts. It is also not seeing much inflation. Instead, a lot of prices, such as cotton prices, have decreased. Additionally, the impact of the strong dollar in China has settled down.
Financials.
Total Q2 sales increased by 10.5 percent. Comp store sales in Q2 increased by 4.5 percent, primarily the result of an increase in traffic. The average ticket increased only slightly for the year. For Q3 and for fiscal year 2012, Dollar Tree is projecting sales growth in the low to mid-single digits.
Gross profit margin was 35.2 percent during Q2, which was flat from last year. Gross margins are always in a narrow range because as prices increase, Dollar Tree simply changes its product to maintain its price.
EPS for Q2 was $.51 per diluted share, an increase of 30.8 percent. For Q3, Dollar Tree expects EPS to be $.47 to $.51 per diluted share. For fiscal year 2012, Dollar Tree expects earnings per share to be between $2.45 and $2.54 per diluted share, an increase of 21.9 percent to 26.4 percent. This estimate does not include the 53rd week that is included in 2012.
Operating margin for Q2 was 10.8 percent, an increase of 80 basis points. The operating margin was the company's highest operating margin for Q2 in the company's history.
Inventory increased by 9.6 percent. Consolidated inventory per selling square foot increased by 2.3 percent, which reflects an increase of goods on the water and in distribution centers as Dollar Tree smooths its inventory through its logistics network.
During Q2, Dollar Tree repurchased 1.6 million shares of stock for $80.9 million. It has $1.1 billion left in its repurchase authorization.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/813181-dollar-tree-s-ceo-discusses-q2-2012-results-earnings-call-transcript
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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