Dollar Tree, Inc. (DLTR)

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Dollar Tree, Inc. (DLTR)

Q2 2011 Earnings Call

August 18, 2011, 09:00 a.m. ET


Tim Reid - VP, IR

Bob Sasser - President and CEO

Kevin Wampler - CFO


Dan Wewer - Raymond James

Peter Keith - Piper Jaffray

Scott Kaufman-Ross - Goldman Sachs

Neil Currie - Dahlman Rose

Joseph Parkhill - Morgan Stanley

Meredith Adler - Barclays Capital

Scot Ciccarelli - RBC Capital Markets

David Mann - Johnson Rice

John Zolidis - Buckingham Research

Tom Nikic - Cowen and Company

Anthony Chukumba - BB&T Capital Markets

Brian Innes - Telsey Advisory Group



Good day and welcome to the Dollar Tree, Inc. Second Quarter 2011 Earnings Conference Call. As a reminder, today’s call 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, Alicia. Good morning to all and welcome to the Dollar Tree conference call for the second quarter of fiscal 2011.

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 second quarter financial performance and provide our guidance for the remainder of 2011. Before we begin, I’d 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 the 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 of last year 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 quarter of last year were $1.10 including the charge. You are advised that all earnings or margin comparisons in today’s remarks from this point forward will exclude that charge unless otherwise noted.

At the end of our planned remarks, we will open the call to your questions which we would 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. Bob?

Bob Sasser

Thanks Tim. Good morning everyone and thank you for joining us. This morning we announced our sales and earnings for the second quarter 2011 and I’m very pleased with the results. This was the 10th consecutive quarter of more than 20% EPS growth and we are well on our way to another record year.

To recap the quarter comparable store sales increased 4.7% that’s on top of 6.7% comp in the second quarter of last year. I’m very pleased to see that the comp was driven by both a 3.6% increase in traffic and a 1.1% increase in average ticket. And total sales increased 11.9% to $1.54 billion.

Earnings for the second quarter were $0.77 per diluted share. This represents a 26.2% increase over last year’s $0.61 per share. Operating margin for the quarter was 10%, an increase of 70 basis points over the second quarter of last year. And just to note this is our highest second quarter operating margin ever as a public company.

Operating income was $153.5 million, an increase of 25.7 million or 20.1% over last year. And net income rose 21.7% to 94.9 million. For the first half of 2011 compared with last year, sales were 3.09 billion, an increase of 13.1% and comp store sales increased 5.9%. First half 2011 earnings per share were $1.59, an increase of 30.3% compared with $1.22 per share in the first half last year, and that excludes the charge in the first quarter last year as Tim said it’s pure apples-to-apples.

Operating income increased by 58.5 million. Operating margin was 10.2%, an increase of 80 basis points compared with the first half last year and net income rose 24% to $195.9 million.

Customers continue to respond enthusiastically to our assortment of low price and high value basics. We’re gaining new customers every quarter and when customers shop at our stores, they like our compelling variety of discretionary product. Shoppers are buying more on each trip.

Sales growth came from increases in both basic and discretionary products. Our top performing categories included food, party supplies, toys, health and beauty care basics and products for the home. Our ever-changing assortment of seasonal businesses continued to drive sales and merchandise excitement throughout the quarter, and most importantly, we provided value to our customer’s and brought a record level of second quarter earnings to bottom-line.

Our success speaks to the power and flexibility of the model and a high level of execution across the organization. Our stores, merchants and support teams are guided by strategic vision that involves every element of the business. Everything revolves around the customer at Dollar Tree and we make a coordinated effort to wile them every time they visit our stores. We have a flexible merchandising model which we use to our advantage.

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