DLTR

Dollar Tree, Inc. (DLTR)

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

Q3 2012 Earnings Call

November 15, 2012, 09:00 am ET

Executives

Tim Reid - VP, Investor Relations

Bob Sasser - President & CEO

Kevin Wampler - CFO

Analysts

Scot Ciccarelli - RBC Capital Partners

Matt Boss - JPMorgan

Matt Nemer - Wells Fargo Securities

Charles Grom - Deutsche Bank

Meredith Adler - Barclays

Dan Wewer - Raymond James

Stephen Grambling - Goldman Sachs

Edward Kelly - Credit Suisse

Dan Binder - Jefferies

Presentation

Operator

Good day and welcome to the Dollar Tree Inc.’s Third Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Tim Reid, Vice President of Investor Relations. Please go ahead, sir.

Tim Reid

Thank you, Roxanne. Good morning and welcome to the Dollar Tree conference call for the third quarter of fiscal 2012. 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 our 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 the year.

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.

One other note, as a reminder on September 28, 2012, Dollar Tree sold its ownership interest in Ollie's Holdings, which further will be referred to as Ollie’s. The company originally acquired its Ollie’s ownership interest in 2003. The sale had a favorable impact on third quarter earnings with an increase to net income of $0.17 per diluted share. Unless otherwise noted, all net income and earnings data presented today will exclude the impact of the Ollie’s transaction.

At the end of our planned remarks, we will open the call to questions which we ask that you limit to one question and one follow-up question if necessary.

And now, I would like to turn the call over to Bob Sasser, our President and CEO. Bob?

Bob Sasser

Thank you, Tim. Good morning everyone. This morning, we announced our sales and earnings for the third quarter of 2012. Total sales increased 7.8% to $1.72 billion, driven principally by increases in traffic. Our comparable store sales increased 1.6% compared with a 4.8% increase last year and an 8.7% comp the previous year.

Earnings for the third quarter were $0.68 per diluted share. This includes $0.17 from the sale of our interest in Ollie’s. Excluding the sale of Ollie’s, our earnings for the third quarter were $0.51 per share. This represents an 18.6% increase over last year’s $0.43 per share and was at the high-end of our $0.47 to $0.51 range of guidance.

Operating margin for the third quarter 2012 was 10.7%, an increase of 40 basis points over the third quarter last year. Net income rose 48.6% to $155.4 million versus $104.5 million last year. Excluding the income derived from the sale of Ollie’s, net income rose 12.2% to $117.3 million.

Year-to-date, through three quarters of 2012, total sales were $5.15 billion, an increase of 9.9% and comp store sales increased 3.9%. Year-to-date operating income has increased by $76.5 million; operating margin was 10.8%, an increase of 60 basis points compared with the same period last year.

Net income rose 30.0% to $390.7 million, and earnings per share were $1.69, an increase of 37.4% compared with $1.23 per share reported last year. Excluding the income derived from the sale of Ollie’s, net income rose 17.4% to $352.6 million, and earnings per share were $1.53, an increase of 24.4% compared with $1.23 per share reported last year.

Sales increases in the third quarter came from growth in both basic and variety categories with basic consumable categories growing at a slightly faster pace. Our top performing categories included housewares and home products, healthcare products and food and beverages. Customer responded enthusiastically to our Halloween seasonal product and our sales in the third quarter met expectations. Sales were particularly strong in Halloween Home Décor. Seasonal changes were executed in a timely manner and we’re now ready for fall, Thanksgiving and holiday season. In terms of the sales cadence in the third quarter, comps were positive every month and we saw a sequential improvement from August through October.

In terms of geography, performance in the third quarter was relatively consistent across the country with the highest comps coming from the Mid-Atlantic, Midwest and New England followed closely by the Southwest and the Southeast. Dollar Tree remains a destination for high value consumer products and customer traffic was up throughout the quarter. When customers are in our store shopping for the basics, we give them every reason to stock up on our terrific assortment of high value and high margin variety merchandise. Even in a difficult economy, at Dollar Tree you can still splurge everything only $1.

Looking to the future, we are excited about our growth potential and continued relevance to the customer. Over the next several years, it’s likely that consumers demand for value will continue to grow and intensify. Dollar Tree is uniquely positioned to take advantage of this trend. Our goal is to provide more value to a broader range of customers. And we are doing this in many ways, by opening more stores, by opening better, more productive stores and by developing new formats, new markets and new channels.

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