DLTR

Dollar Tree, Inc. (DLTR)

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Exchange: NASDAQ
Industry: Consumer Services
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Dollar Tree, Inc. (DLTR)

Q3 2011 Earnings Call

November 17, 2011 9:00 am ET

Executives

Bob Sasser – President, Chief Executive Officer

Kevin Wampler – Chief Financial Officer

Tim Reid – Vice President, Investor Relations

Analysts

Scot Ciccarelli – RBC Capital Markets

Charles Grom- Deutsche Bank

Joseph Parkhill – Morgan Stanley

Peter Keith – Piper Jaffray

Meredith Adler – Barclays Capital

Dan Binder – Jefferies & Co.

David Mann – Johnson Rice

Aram Rubinson – Nomura Securities

Joe Feldman – Telsey Advisory Group

Michael Exstein – Credit Suisse

Presentation

Operator

Good day and welcome to the Dollar Tree Incorporated Third Quarter 2011 Earnings conference 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

Thank you, Elizabeth. Good morning and welcome to the Dollar Tree conference call for the third quarter of fiscal 2011. Our call today will be led by Bob Sasser, our President and Chief Executive Officer who will provides insights on our performance in the quarter and recent developments in our business. Kevin Wampler, our Chief Financial Officer, will provide a more detailed review of the third quarter financial performance and provide our guidance for the remainder of 2011.

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, most recent current report on Form 8-K, quarterly report on Form 10-Q, and annual report on Form 10-K, all of 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.

In addition, as we have previously disclosed, in the first quarter last year – 2010 – we recorded a non-recurring, non-cash charge of $26.3 million or $0.13 per diluted share relating to a change in retail inventory accounting. Diluted earnings per share in the first three quarters last year were $1.82 including the charge. You are advised that all earnings or margin comparisons in today’s remarks from this point forward will exclude the charge unless otherwise noted.

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.

And now, I’d like to turn the call over to Bob Sasser, our CEO. Bob?

Bob Sasser

Thanks, Tim. Good morning everyone. This morning we announced our sales and earnings for the third quarter of 2011. I’m pleased to report that against a very strong quarter last year, our comparable store sales increased 4.8% - that’s a 4.8% increase over an 8.7% comp last year. The comp was driven by increases in both traffic and average ticket. Traffic increased 3.4% and average ticket increased 1.4%. Total sales increased 11.9% to $1.6 billion. That’s at the very top of our range of guidance.

Earnings for the third quarter were $0.87 per diluted share. This represents a 19.2% increase over last year’s $0.73 per share, an especially strong increase considering last year included the benefit of more than $0.03 per share from unusual items.

Operating margin for the third quarter 2011 was 10.3%, an increase of 40 basis points over the third quarter last year, and net income rose 12.1% to $104.5 million.

Year-to-date through three quarters of 2011, total sales were $4.68 billion, an increase of 12.7%, and comp store sales have increased 5.5%. Year-to-date earnings per share are $2.45, an increase of 25.6% compared with $1.95 per share in the first three quarters last year. This increase is excluding the charge we took in the first quarter last year. Year-to-date operating income has increased by $82.5 million. Operating margin was 10.3%, an increase of 70 basis points compared with the same period last year and net income rose 19.6% to $300.4 million.

Our U.S. inventory turns increased once again in the third quarter as they have consistently for the past six years. I am particularly proud of this performance. It’s been a team effort especially driven by planning, allocations, and replenishment departments working with their logistics partners. I have great confidence that we can continue to improve on this item with our ability to continue increasing our inventory productivity while improving customer satisfaction by having the right product in the right stores.

As I said earlier, I’m very pleased with third quarter results. This success speaks to the power of the model and the high level of execution across the entire organization. Today our stores are full, fun and friendly to shop. Our merchandise is relevant, a surprisingly value, and every item at our Dollar Tree stores is $1 or less. Customers love the stores and the product and the concept. They continue to shop in record numbers and are buying more each time they shop.

Sales growth in the third quarter came from a mix of both basic and discretionary products. The top performing categories including food, snacks, and beverage, health and beauty care, home products, and party supplies. Seasons have always been an important part of the Dollar Tree business and our seasonal assortments this year have been more complete and more compelling than ever. The sell-through on Halloween and fall seasonal merchandise was very good and our store teams have done an exceptional job of transitioning the front of our stores from Halloween to Thanksgiving and Christmas, and they did it virtually overnight. I think it’s been the best transition ever.

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