Dollar Tree, Inc. (DLTR)

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Dollar Tree Inc. (DLTR)

Q3 2009 Earnings Call

November 24, 2009 9:00 am ET


Tim Reid - VP of IR

Bob Sasser - President and CEO

Kevin Wampler - CFO


Charles Grom - JPMorgan

Meredith Adler - Barclays Capital

Adrianne Shapira - Goldman Sachs

John Zolidis - Buckingham Research

Mitch Kaiser - Piper Jaffray

David Mann - Johnson Rice

Joe Feldman - Telsey Advisory Group

Alan Rifkin - Bank of America

Mike Baker - Deutsche Bank

Scot Ciccarelli - RBC Capital Markets



Good day, and welcome to the Dollar Tree Incorporated third quarter 2009 Earnings Call. As a reminder, today’s call is being recorded. At this time, I would like to turn the call over to Mr. Tim Reid, Vice President of Investor Relations. Please go ahead.

Tim Reid

Good morning, and welcome to the Dollar Tree conference call for the third quarter of fiscal 2009. I am Tim Reid, Vice President of Investor relations.

Our call today will be led by Bob Sasser, our President and Chief Executive Officer, who will provide insights on our performance in the quarter and recent developments in the business. Kevin Wampler, our Chief Financial Officer will provide a more detailed review of our third quarter financial performance and provide our guidance for the remainder of 2009.

Before we begin, I would like to remind everyone that various remarks that we will make about future expectations, plans, and prospects for the company constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors included in our most recent press release, our most recent current report on Form 8-K, quarterly report on Form 10-Q, and annual report on Form 10-K, which are on file with the SEC.

We have no obligation to update our forward-looking statements and you should not expect us to do so. At the end of our planned remarks we will open the call to your questions which we ask that you limit to one question and one follow-up question if necessary.

Now, I’d like to turn the call over to Bob Sasser, our President and CEO. Bob?

Bob Sasser

I appreciate your continued interest in Dollar Tree. This morning we announced earnings for the third quarter of $0.76 per diluted share. This represents a 61.7% increase over last year’s $0.47 per share.

Operating margin for the quarter was 8.6%, an increase of 240 basis points over the third quarter last year. Operating income was $107 million, an increase of $38 million or 55% over last year. Net income rose 58% to $68 million.

As previously announced, total sales for the quarter were $1.248 billion, that was an increase of 12.1% and our comp store sales increased 6.5% for the quarter. That's on top of a 6.2% increase last year. Year-to-date through third quarter and compared to last year's sales were $3.7 billion, an increase of 12.7%.

Gross margin through the third quarter was 34.8%, an increase of 110 basis points. SG&A was 26.8%, an improvement of 80 basis points.

Operating income through Q3 grew by $94 million to 8.0% of sales, an increase of 180 basis points. Net income rose 49.2% to $185 million and earnings per share year-to-date through third quarter have increased 49.6% to $2.05 per share.

I am pleased with our performance in the third quarter. It speaks to the value of our merchandise and the quality of our shopping experience. Through good times and tough times, customers know they can save money at Dollar Tree and they are responding in record numbers. Our traffic is up. Long time customers are shopping more frequently and new customers are finding us all the time and when they shop our stores, they are finding a balanced mix of both high-value basics that are needed everyday and surprising value on discretionary and seasonal product selections that add excitement to the shopping experience.

As evidenced in the third quarter, our top performing categories included health and beauty care basics, household cleaning supplies and party goods. Seasonal products has always been a very important part of our business, we like the margin which is generally higher and it adds an element of fun to our stores. Our seasonal assortments are more complete and more compelling than ever and the customer can count on getting a value. Even though it is a discretionary purchase, it’s still only $1.

During the third quarter, our merchants provided a superior assortment of seasonal product. Our store teams executed the transition smoothly from summer to back-to-school through Halloween and our customers responded. The sell-through on Halloween and fall seasonal merchandise was excellent. Our stores are now set for Thanksgiving and the holiday season.

Dollar Tree has proven to be relevant in all economic times, through good periods and bad, we continue to thrill our customers. This is no accident; it’s our merchandise value and our shopping experience that brings them back. Our strategy has been validated by results and it’s largely due to five key initiatives.

First, over the past several years, we have right-sized our stores and added new product. Our stores are now a mix of things customers need and things customers want. The 10,000 to 12,000 square foot store that we are opening in strip centers and in free-standing locations across the country is ideal for our model.

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