Dollar Tree, Inc. Reports Results for the Third Quarter Fiscal 2019

Dollar Tree, Inc. (NASDAQ: DLTR), North America's leading operator of discount variety stores, today reported financial results for the quarter ended November 2, 2019.

"The third quarter represented another period of solid sales performance for both brands, Dollar Tree and Family Dollar. Our store optimization efforts and sales driving initiatives are working. The teams have completed more than 1,150 Family Dollar H2 renovations, nearly 200 Dollar Tree re-banners, more than 1,000 Dollar Tree Snack Zones and launched our Dollar Tree Plus! test already this year," stated Gary Philbin, President and Chief Executive Officer. "Fiscal 2019 has been a unique year as the result of several factors: the material acceleration in our Family Dollar store optimization initiatives, the consolidation of our two store support centers into southeast Virginia, the global helium shortage, and the continued uncertainty regarding trade and the related tariffs. I am proud of our team's efforts and the sales execution through this environment."

Third Quarter Results

Consolidated net sales increased 3.7% to $5.75 billion from $5.54 billion in the prior year's third quarter. Enterprise same-store sales increased 2.5%. Same-store sales for the Dollar Tree segment increased 2.8%. Same-store sales for the Family Dollar segment increased 2.3%. The comparable store sales results at both segments were driven by increases in both average ticket and transaction count.

Gross profit increased by $32.6 million to $1.70 billion in the quarter compared to the prior year's third quarter. As a percentage of net sales, gross margin was 29.7% compared to 30.2% in the prior year. The decrease in gross profit margin was driven by higher freight and distribution costs, higher sales of lower margin consumable merchandise primarily in the Family Dollar segment, and shrink.

Selling, general and administrative expenses were 23.5% of net sales compared to 23.2% of net sales in the prior year's third quarter. The increase was driven primarily by operating and corporate expenses related to the consolidation of the Company's store support centers, costs related to asset disposals for closed stores, and slightly higher depreciation expense, partially offset by lower payroll and benefits expenses.

Operating income for the quarter was $358.4 million compared with $387.8 million in the same period last year and operating income margin was 6.2% of net sales in the third quarter compared to 7.0% of net sales in last year's quarter.

Net income was $255.8 million in the third quarter and diluted earnings per share for the quarter were $1.08 compared to $1.18 in the prior year's quarter.

The Company repurchased 125,048 shares during the quarter for $11.6 million. The Company has $800 million remaining on its share repurchase authorization.

During the quarter, the Company opened 165 new stores, expanded or relocated 15 stores, and closed 42 stores. Additionally, the Company opened 39 Dollar Tree stores that were re-bannered from Family Dollar and completed 247 renovations to the Family Dollar H2 format. Retail selling square footage at quarter end was approximately 121.0 million square feet.

First Nine Months Results

Consolidated net sales increased 4.1% to $17.30 billion from $16.62 billion in the same period last year. Enterprise same-store sales increased 2.4% on a constant currency basis (or 2.3% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for the Dollar Tree segment increased 2.6% (or 2.5% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for Family Dollar increased 2.1%.

Gross profit for the first nine months increased $44.8 million to $5.08 billion. As a percentage of net sales, gross margin was 29.4%, compared to 30.3% in the prior year period.

Selling, general and administrative expenses were 23.5% of net sales compared to 23.0% of net sales for the first nine months of 2018.

Operating income for the period was $1.01 billion. As a percentage of net sales, operating income margin decreased to 5.9% in the current year period from 7.3% in the prior year.

Net income compared to the prior year's period decreased 1.7% to $704.0 million and diluted earnings per share decreased 1.7% to $2.95 compared to $3.00 in the prior year's period.

Company Outlook

Just prior to the Company's previous quarterly earnings announcement on August 29, 2019, the United States Trade Representative (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. As noted in its August 29, 2019 earnings announcement, the outlook provided at that time did not include any impact related to these changes.

The Company now estimates that Section 301 tariffs will increase its cost of goods sold by approximately $19 million, or $0.06 per diluted share, in the fourth quarter of 2019 if tariffs are fully implemented.

The Company estimates consolidated net sales for the fourth quarter of 2019 will range from $6.33 billion to $6.44 billion, based on a low single-digit increase in same-store sales for the enterprise. Diluted earnings per share for the quarter, including tariff costs, are estimated to be in the range of $1.70 to $1.80.

The decrease from prior implied fourth quarter guidance represents the expected effects of: Section 301 tariffs; additional pressure on merchandise margin based on lower-margin consumables growing faster than originally forecasted; payroll cost pressure in distribution centers; and increased run rates for repairs and maintenance, utilities and depreciation.

Consolidated net sales for full-year fiscal 2019 are now expected to range from $23.62 billion to $23.74 billion compared to the Company's previously expected range of $23.57 billion to $23.79 billion. This estimate is based on a low single-digit increase in same-store sales and 1.1% selling square footage growth. The Company now anticipates diluted earnings per share for full-year fiscal 2019 will range between $4.66 and $4.76. This includes discrete costs of approximately $85 million, or $0.28 per diluted share, approximately $15 million, or $0.05 per diluted share, in store closure related costs, and approximately $19 million, or $0.06 per diluted share, from tariffs.

"The value and convenience offered by Dollar Tree and Family Dollar continue to resonate with our shoppers, as demonstrated by the Company's sales performance in the first three quarters of fiscal 2019," Philbin added. "With several critical initiatives now behind us, including the acceleration in store optimization initiatives and the consolidation of our store support centers, we are planning for more than 1,000 Family Dollar H2 renovations for fiscal 2020 and are increasing our focus on operating margin performance. Our teams are well prepared for the holiday season and closing out an important year for our Company. We believe we have built a strong foundation to enhance our ability to grow and improve our business to deliver long-term value to our shareholders."

Conference Call Information

On Tuesday, November 26, 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 866-575-6539. A recorded version of the call will be available until midnight Monday, December 2, 2019, and may be accessed by dialing 888-203-1112. The access code is 8107336. A webcast of the call is accessible through Dollar Tree's website and will remain online through Monday, December 2, 2019.

Dollar Tree, a Fortune 200 Company, operated 15,262 stores across 48 states and five Canadian provinces as of November 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 fact 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 fourth quarter 2019 and full-year fiscal 2019 results of operations, including consolidated net sales, same-store sales and diluted earnings per share; our expected square footage growth in fiscal 2019; our expectations regarding operating and merchandise margin performance; the continued uncertainty and impact relating to trade and related tariffs and the global helium shortage; distribution costs; the increased run rates for certain costs; our preparations for the holiday season and fourth quarter 2019; expectations concerning fiscal 2020 Family Dollar H2 renovations; 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.