Virginia | 26-2018846 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
500 Volvo Parkway, Chesapeake, Virginia | 23320 | |
(Address of principal executive offices) | (Zip Code) |
Yes ý | No ¨ |
Yes ý | No ¨ |
Large accelerated filer ý | Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Emerging growth company ¨ |
Yes ¨ | No ý |
Page | ||
PART I - FINANCIAL INFORMATION | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II - OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions, except per share data) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net sales | $ | 5,525.6 | $ | 5,281.2 | $ | 11,079.3 | $ | 10,568.3 | ||||||||
Cost of sales | 3,861.7 | 3,653.4 | 7,715.8 | 7,313.4 | ||||||||||||
Gross profit | 1,663.9 | 1,627.8 | 3,363.5 | 3,254.9 | ||||||||||||
Selling, general and administrative expenses, excluding Receivable impairment | 1,281.4 | 1,205.7 | 2,543.4 | 2,393.1 | ||||||||||||
Receivable impairment | — | 2.6 | — | 53.5 | ||||||||||||
Selling, general and administrative expenses | 1,281.4 | 1,208.3 | 2,543.4 | 2,446.6 | ||||||||||||
Operating income | 382.5 | 419.5 | 820.1 | 808.3 | ||||||||||||
Interest expense, net | 46.1 | 75.8 | 276.1 | 150.5 | ||||||||||||
Other (income) expense, net | (1.3 | ) | 0.1 | (1.1 | ) | 0.4 | ||||||||||
Income before income taxes | 337.7 | 343.6 | 545.1 | 657.4 | ||||||||||||
Income tax expense | 63.8 | 109.8 | 110.7 | 223.1 | ||||||||||||
Net income | $ | 273.9 | $ | 233.8 | $ | 434.4 | $ | 434.3 | ||||||||
Basic net income per share | $ | 1.15 | $ | 0.99 | $ | 1.83 | $ | 1.84 | ||||||||
Diluted net income per share | $ | 1.15 | $ | 0.98 | $ | 1.82 | $ | 1.83 |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income | $ | 273.9 | $ | 233.8 | $ | 434.4 | $ | 434.3 | ||||||||
Foreign currency translation adjustments | (1.3 | ) | 8.0 | (5.2 | ) | 5.0 | ||||||||||
Total comprehensive income | $ | 272.6 | $ | 241.8 | $ | 429.2 | $ | 439.3 |
(in millions) | August 4, 2018 | February 3, 2018 | July 29, 2017 | |||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 647.3 | $ | 1,097.8 | $ | 693.3 | ||||||
Short-term investments | — | — | 4.0 | |||||||||
Merchandise inventories, net | 3,288.2 | 3,169.3 | 2,928.5 | |||||||||
Other current assets | 337.3 | 309.2 | 189.4 | |||||||||
Total current assets | 4,272.8 | 4,576.3 | 3,815.2 | |||||||||
Property, plant and equipment, net of accumulated depreciation of $3,448.2, $3,192.1 and $2,941.8, respectively | 3,316.1 | 3,200.7 | 3,115.4 | |||||||||
Assets available for sale | 6.9 | 8.0 | 10.4 | |||||||||
Goodwill | 5,023.9 | 5,025.2 | 5,025.2 | |||||||||
Favorable lease rights, net of accumulated amortization of $270.8, $230.9 and $202.8, respectively | 334.5 | 375.3 | 420.4 | |||||||||
Tradename intangible asset | 3,100.0 | 3,100.0 | 3,100.0 | |||||||||
Other intangible assets, net | 4.7 | 4.8 | 4.9 | |||||||||
Other assets | 44.7 | 42.5 | 40.8 | |||||||||
Total assets | $ | 16,103.6 | $ | 16,332.8 | $ | 15,532.3 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Current portion of long-term debt | $ | — | $ | 915.9 | $ | 165.9 | ||||||
Accounts payable | 1,241.7 | 1,174.8 | 1,196.3 | |||||||||
Income taxes payable | 14.1 | 31.5 | — | |||||||||
Other current liabilities | 651.6 | 736.9 | 722.5 | |||||||||
Total current liabilities | 1,907.4 | 2,859.1 | 2,084.7 | |||||||||
Long-term debt, net, excluding current portion | 5,041.8 | 4,762.1 | 5,595.0 | |||||||||
Unfavorable lease rights, net of accumulated amortization of $71.7, $61.1 and $51.2, respectively | 89.2 | 100.0 | 111.5 | |||||||||
Deferred tax liabilities, net | 976.0 | 985.2 | 1,449.8 | |||||||||
Income taxes payable, long-term | 30.1 | 43.8 | 41.6 | |||||||||
Other liabilities | 411.6 | 400.3 | 389.5 | |||||||||
Total liabilities | 8,456.1 | 9,150.5 | 9,672.1 | |||||||||
Commitments and contingencies | ||||||||||||
Shareholders’ equity | 7,647.5 | 7,182.3 | 5,860.2 | |||||||||
Total liabilities and shareholders’ equity | $ | 16,103.6 | $ | 16,332.8 | $ | 15,532.3 | ||||||
Common shares outstanding | 237.9 | 237.3 | 236.8 |
26 Weeks Ended | ||||||||
August 4, | July 29, | |||||||
(in millions) | 2018 | 2017 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 434.4 | $ | 434.3 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 304.0 | 305.2 | ||||||
Provision for deferred taxes | (9.4 | ) | (6.8 | ) | ||||
Amortization of debt discount and debt-issuance costs | 51.7 | 8.4 | ||||||
Receivable impairment | — | 53.5 | ||||||
Other non-cash adjustments to net income | 49.1 | 49.2 | ||||||
Loss on debt extinguishment | 114.7 | — | ||||||
Changes in operating assets and liabilities | (175.7 | ) | (168.6 | ) | ||||
Net cash provided by operating activities | 768.8 | 675.2 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (394.3 | ) | (271.7 | ) | ||||
Proceeds from (payments for) fixed asset disposition | (0.4 | ) | 2.1 | |||||
Net cash used in investing activities | (394.7 | ) | (269.6 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt, net of discount | 4,775.8 | — | ||||||
Principal payments for long-term debt | (5,432.7 | ) | (569.3 | ) | ||||
Debt-issuance and debt extinguishment costs | (155.3 | ) | — | |||||
Proceeds from revolving credit facility | 50.0 | — | ||||||
Repayments of revolving credit facility | (50.0 | ) | — | |||||
Proceeds from stock issued pursuant to stock-based compensation plans | 10.2 | 14.9 | ||||||
Cash paid for taxes on exercises/vesting of stock-based compensation | (21.7 | ) | (24.7 | ) | ||||
Net cash used in financing activities | (823.7 | ) | (579.1 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (0.9 | ) | 0.4 | |||||
Net decrease in cash and cash equivalents | (450.5 | ) | (173.1 | ) | ||||
Cash and cash equivalents at beginning of period | 1,097.8 | 866.4 | ||||||
Cash and cash equivalents at end of period | $ | 647.3 | $ | 693.3 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest, net of amounts capitalized | $ | 277.7 | $ | 143.7 | ||||
Income taxes | $ | 169.2 | $ | 363.8 | ||||
Non-cash transactions: | ||||||||
Accrued capital expenditures | $ | 46.4 | $ | 37.6 |
As of August 4, 2018 | As of February 3, 2018 | As of July 29, 2017 | ||||||||||||||||||||||
(in millions) | Principal | Unamortized Debt Discount, Premium and Issuance Costs | Principal | Unamortized Debt Discount, Premium and Issuance Costs | Principal | Unamortized Debt Discount, Premium and Issuance Costs | ||||||||||||||||||
Forgivable Promissory Note | $ | — | $ | — | $ | — | $ | — | $ | 7.0 | $ | — | ||||||||||||
5.25% Acquisition Notes, due 2020 | — | — | 750.0 | 6.1 | 750.0 | 7.4 | ||||||||||||||||||
5.75% Acquisition Notes, due 2023 | — | — | 2,500.0 | 30.8 | 2,500.0 | 33.4 | ||||||||||||||||||
Term Loan A-1 | — | — | 1,532.7 | 3.4 | 1,615.7 | 4.1 | ||||||||||||||||||
Term Loan B-2 | — | — | 650.0 | 8.6 | 650.0 | 9.5 | ||||||||||||||||||
$1.25 billion Tranche A Revolving Credit Facility | — | — | — | 12.6 | — | 15.2 | ||||||||||||||||||
5.00% Senior Notes, due 2021 | 300.0 | (5.7 | ) | 300.0 | (6.8 | ) | 300.0 | (7.8 | ) | |||||||||||||||
$1.25 billion Revolving Credit Facility, interest payable at LIBOR, reset periodically, plus 1.125%, which was 3.20% at August 4, 2018 | — | 11.4 | — | — | — | — | ||||||||||||||||||
Term Loan Facility, due 2020, interest payable at LIBOR, reset periodically, plus 0.95%, which was 3.03% at August 4, 2018 | 782.0 | 2.2 | — | — | — | — | ||||||||||||||||||
Senior Floating Rate Notes, due 2020, interest payable at LIBOR, reset quarterly, plus 0.70%, which was 3.04% at August 4, 2018 | 750.0 | 4.5 | — | — | — | — | ||||||||||||||||||
3.70% Senior Notes, due 2023 | 1,000.0 | 8.4 | — | — | — | — | ||||||||||||||||||
4.00% Senior Notes, due 2025 | 1,000.0 | 7.7 | — | — | — | — | ||||||||||||||||||
4.20% Senior Notes, due 2028 | 1,250.0 | 11.7 | — | — | — | — | ||||||||||||||||||
Total | $ | 5,082.0 | $ | 40.2 | $ | 5,732.7 | $ | 54.7 | $ | 5,822.7 | $ | 61.8 |
(in millions) | August 4, 2018 | February 3, 2018 | July 29, 2017 | |||||||||
Level 1 | ||||||||||||
Short-term investments | $ | — | $ | — | $ | 4.0 | ||||||
Deferred compensation plan assets | 22.5 | 20.7 | 19.4 |
August 4, 2018 | February 3, 2018 | July 29, 2017 | ||||||||||||||||||||||
(in millions) | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||
Level 1 | ||||||||||||||||||||||||
Senior Notes and Acquisition Notes | $ | 4,288.7 | $ | 4,273.4 | $ | 3,684.6 | $ | 3,519.9 | $ | 3,745.7 | $ | 3,517.0 | ||||||||||||
Level 2 | ||||||||||||||||||||||||
Term loans | 774.2 | 779.8 | 2,187.6 | 2,170.7 | 2,275.5 | 2,252.1 |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions, except per share data) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Basic net income per share: | ||||||||||||||||
Net income | $ | 273.9 | $ | 233.8 | $ | 434.4 | $ | 434.3 | ||||||||
Weighted average number of shares outstanding | 237.9 | 236.7 | 237.7 | 236.5 | ||||||||||||
Basic net income per share | $ | 1.15 | $ | 0.99 | $ | 1.83 | $ | 1.84 | ||||||||
Diluted net income per share: | ||||||||||||||||
Net income | $ | 273.9 | $ | 233.8 | $ | 434.4 | $ | 434.3 | ||||||||
Weighted average number of shares outstanding | 237.9 | 236.7 | 237.7 | 236.5 | ||||||||||||
Dilutive effect of stock options and restricted stock (as determined by applying the treasury stock method) | 0.7 | 0.7 | 0.8 | 0.9 | ||||||||||||
Weighted average number of shares and dilutive potential shares outstanding | 238.6 | 237.4 | 238.5 | 237.4 | ||||||||||||
Diluted net income per share | $ | 1.15 | $ | 0.98 | $ | 1.82 | $ | 1.83 |
Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Nonvested at February 3, 2018 | 1,525,252 | $ | 79.37 | ||||
Granted | 783,366 | 94.87 | |||||
Vested | (628,406 | ) | 79.78 | ||||
Forfeited | (37,368 | ) | 83.27 | ||||
Nonvested at August 4, 2018 | 1,642,844 | $ | 86.53 |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net sales: | ||||||||||||||||
Dollar Tree | $ | 2,768.8 | $ | 2,586.9 | $ | 5,553.2 | $ | 5,158.6 | ||||||||
Family Dollar | 2,756.8 | 2,694.3 | 5,526.1 | 5,409.7 | ||||||||||||
Total net sales | $ | 5,525.6 | $ | 5,281.2 | $ | 11,079.3 | $ | 10,568.3 |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Gross profit: | ||||||||||||||||
Dollar Tree | $ | 955.3 | $ | 895.8 | $ | 1,916.1 | $ | 1,792.5 | ||||||||
Family Dollar | 708.6 | 732.0 | 1,447.4 | 1,462.4 | ||||||||||||
Total gross profit | $ | 1,663.9 | $ | 1,627.8 | $ | 3,363.5 | $ | 3,254.9 |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Depreciation and amortization expense: | ||||||||||||||||
Dollar Tree | $ | 65.8 | $ | 62.7 | $ | 129.7 | $ | 124.2 | ||||||||
Family Dollar | 86.8 | 88.7 | 174.4 | 181.1 | ||||||||||||
Total depreciation and amortization expense | $ | 152.6 | $ | 151.4 | $ | 304.1 | $ | 305.3 |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Operating income: | ||||||||||||||||
Dollar Tree | $ | 297.7 | $ | 289.1 | $ | 627.9 | $ | 604.5 | ||||||||
Family Dollar | 84.8 | 130.4 | 192.2 | 203.8 | ||||||||||||
Total operating income | $ | 382.5 | $ | 419.5 | $ | 820.1 | $ | 808.3 |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
August 4, | July 29, | August 4, | July 29, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Capital expenditures: | ||||||||||||||||
Dollar Tree | $ | 149.9 | $ | 87.7 | $ | 267.1 | $ | 153.4 | ||||||||
Family Dollar | 63.5 | 73.7 | 127.2 | 118.3 | ||||||||||||
Total capital expenditures | $ | 213.4 | $ | 161.4 | $ | 394.3 | $ | 271.7 |
As of | ||||||||||||
August 4, | February 3, | July 29, | ||||||||||
(in millions) | 2018 | 2018 | 2017 | |||||||||
Total assets: | ||||||||||||
Dollar Tree | $ | 4,054.4 | $ | 4,113.4 | $ | 3,555.9 | ||||||
Family Dollar | 12,049.2 | 12,219.4 | 11,976.4 | |||||||||
Total assets | $ | 16,103.6 | $ | 16,332.8 | $ | 15,532.3 |
As of | ||||||||||||
August 4, | February 3, | July 29, | ||||||||||
(in millions) | 2018 | 2018 | 2017 | |||||||||
Total goodwill: | ||||||||||||
Dollar Tree | $ | 356.5 | $ | 347.1 | $ | 347.1 | ||||||
Family Dollar | 4,667.4 | 4,678.1 | 4,678.1 | |||||||||
Total goodwill | $ | 5,023.9 | $ | 5,025.2 | $ | 5,025.2 |
• | the potential effect of inflation or deflation and other general business or economic conditions on our costs and profitability, including the potential effect of future changes in prevailing wage rates and overtime regulations and our plans to address these changes, shipping rates, domestic and import freight costs (including increases in domestic freight costs due to the shortage in truck drivers), fuel costs and wage and benefit costs, consumer spending levels, and population, employment and job growth and/or losses in our markets; |
• | the potential effect of future law changes, including taxes and tariffs, including the actual and potential effect of Section 301 tariffs on Chinese goods imposed by the United States Trade Representative, the potential effect of anti-dumping duties imposed by the United States Department of Commerce, the Fair Labor Standards Act as it relates to the qualification of our managers for exempt status, minimum wage and health care law; |
• | the ability to retain key personnel at Family Dollar and Dollar Tree; |
• | our anticipated sales, including comparable store net sales, net sales growth and earnings growth; |
• | the outcome and costs of pending or potential litigation or governmental investigations; |
• | our growth plans, including our plans to add, rebanner, expand or relocate stores, our anticipated square footage increase, and our ability to renew leases at existing store locations; |
• | the average size of our stores to be added in 2018 and beyond; |
• | the effect on our merchandise mix of consumables and the increase in the number of our stores with freezers and coolers and Snack Zone on Dollar Tree’s gross profit margin and sales; |
• | the effect of the Family Dollar renovation initiative and other initiatives on Family Dollar’s sales; |
• | the net sales per square foot, net sales and operating income of our stores; |
• | the benefits, results and effects of the Family Dollar acquisition and integration and the combined Company’s plans, objectives, expectations (financial or otherwise), including synergies, the cost to achieve synergies and the effect on earnings per share; |
• | our gross profit margin, earnings, inventory levels and ability to leverage selling, general and administrative and other fixed costs; |
• | the effect of recent changes in tax laws; |
• | our seasonal sales patterns including those relating to the length of the holiday selling seasons; |
• | the capabilities of our inventory supply chain technology and other systems; |
• | the reliability of, and cost associated with, our sources of supply, particularly imported goods such as those sourced from China; |
• | the capacity, performance and cost of our distribution centers; |
• | our cash needs, including our ability to fund our future capital expenditures and working capital requirements and our ability to service our debt obligations, including our expected annual interest expense; |
• | our expectations regarding competition and growth in our retail sector; and |
• | management’s estimates associated with our critical accounting policies, including inventory valuation, accrued expenses, valuations for impairment analyses and income taxes. |
• | Our profitability is vulnerable to cost increases. |
• | We could encounter disruptions in our distribution network and have encountered and expect to encounter additional costs in distributing merchandise, such as freight cost increases due to the truck driver shortage and fuel cost increases. |
• | Risks associated with our domestic and foreign suppliers, including, among others, increased taxes, duties, tariffs or other restrictions on trade (including Section 301 tariffs imposed by the United States Trade Representative on imported Chinese goods), could adversely affect our financial performance. |
• | Integrating Family Dollar’s operations with ours may be more difficult, costly or time consuming than expected and the anticipated benefits, synergies and cost savings of the acquisition may not be realized. |
• | Our business could be adversely affected if we fail to attract and retain qualified associates and key personnel. |
• | A significant disruption in our computer and technology systems could adversely affect our results of operation or business. |
• | If we are unable to secure our customers’ credit card and confidential information, or other private data relating to our associates, suppliers or our business, we could be subject to negative publicity, costly government enforcement actions or private litigation, which could damage our business reputation and adversely affect our results of operation or business. |
• | Our growth is dependent on our ability to increase sales in existing stores and to expand our square footage profitably. |
• | Our profitability is affected by the mix of products we sell. |
• | Litigation may adversely affect our business, financial condition and results of operations. For a discussion of current legal proceedings, see “Note 4 - Legal Proceedings,” included in “Part I. Financial Information, Item 1. Financial Statements” of this Form 10-Q. |
• | Pressure from competitors may reduce our sales and profits. |
• | A downturn or changes in economic conditions could impact our sales or profitability. |
• | Changes in federal, state or local law, including regulations and interpretations or guidance thereunder, or our failure to comply with such laws, could increase our expenses, expose us to legal risks or otherwise adversely affect us. |
• | The price of our common stock is subject to market and other conditions and may be volatile. |
• | Our substantial indebtedness could adversely affect our financial condition, limit our ability to obtain additional financing, restrict our operations and make us more vulnerable to economic downturns and competitive pressures. |
• | The terms of the agreements governing our indebtedness may restrict our current and future operations, particularly our ability to respond to changes or to pursue our business strategies, and could adversely affect our capital resources, financial condition and liquidity. |
• | Our variable-rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly. |
• | Certain provisions in our Articles of Incorporation and Bylaws could delay or discourage a change of control transaction that may be in a shareholder’s best interest. |
26 Weeks Ended | |||||||||||||||||
August 4, 2018 | July 29, 2017 | ||||||||||||||||
Dollar Tree | Family Dollar | Total | Dollar Tree | Family Dollar | Total | ||||||||||||
Store Count: | |||||||||||||||||
Beginning | 6,650 | 8,185 | 14,835 | 6,360 | 7,974 | 14,334 | |||||||||||
New stores | 150 | 126 | 276 | 165 | 132 | 297 | |||||||||||
Rebannered stores | 17 | (24 | ) | (7 | ) | — | — | — | |||||||||
Closings | (5 | ) | (26 | ) | (31 | ) | (19 | ) | (31 | ) | (50 | ) | |||||
Ending | 6,812 | 8,261 | 15,073 | 6,506 | 8,075 | 14,581 | |||||||||||
Relocations | 34 | 5 | 39 | 59 | 23 | 82 | |||||||||||
Selling Square Feet (in millions): | |||||||||||||||||
Beginning | 57.3 | 59.3 | 116.6 | 54.7 | 57.7 | 112.4 | |||||||||||
New stores | 1.2 | 0.9 | 2.1 | 1.4 | 0.9 | 2.3 | |||||||||||
Rebannered stores | 0.1 | (0.2 | ) | (0.1 | ) | — | — | — | |||||||||
Closings | — | (0.2 | ) | (0.2 | ) | (0.1 | ) | (0.2 | ) | (0.3 | ) | ||||||
Relocations | 0.1 | — | 0.1 | 0.1 | — | 0.1 | |||||||||||
Ending | 58.7 | 59.8 | 118.5 | 56.1 | 58.4 | 114.5 |
• | We have experienced higher than anticipated freight costs primarily due to the truck driver shortage in the United States. This will result in higher costs in future periods as merchandise is sold. |
• | The United States Department of Commerce recently imposed an anti-dumping duty on certain Chinese ribbon products. We estimate that this duty could reduce our earnings per share by approximately $0.04 per share in the fourth quarter. |
• | The United States Trade Representative (USTR) has implemented tariffs against $50 billion in Chinese goods and is considering implementing 10 percent or 25 percent tariffs against an additional $200 billion in Chinese goods. We do not expect that the tariffs already implemented on $50 billion of Chinese goods will be material to our business or results of operations in any quarter. However, the proposed tariffs, if implemented, together with the already implemented tariffs, could have a material adverse effect on our business and results of operations next year. As much as nine percent of our products, measured by sales volume, could be affected by these tariffs which could increase costs or decrease profitability. This potential impact could be mitigated by a variety of factors. The USTR may reduce the list of impacted tariff lines before the tariffs are implemented and later may grant specific product exclusions. We expect to be active in this process. We can also attempt to negotiate price concessions from vendors, cancel orders, change product sizes and specifications, and change our product mix. At Family Dollar, we can also increase prices. We will also try to secure alternative sources of supply outside of China. It is too early to give any assurance as to the scope, duration, or impact of the proposed tariffs, how successful these mitigation efforts will be, or the extent to which mitigation will be necessary. |
• | Merchandise cost, including freight, increased approximately 30 basis points resulting from higher domestic freight costs, partially offset by improved mark-on. |
• | Shrink costs increased approximately 20 basis points due to unfavorable inventory results in the current quarter. |
• | Distribution costs increased approximately 20 basis points resulting primarily from higher distribution center payroll costs. |
• | Store hourly payroll costs increased approximately 50 basis points as a result of the planned reinvestment of income tax savings. |
• | Depreciation and amortization costs decreased approximately 10 basis points as a result of leverage from the comparable store net sales increase for the Dollar Tree segment and assets becoming fully depreciated on the Family Dollar segment. |
• | Store operating costs decreased approximately 10 basis points resulting primarily from lower repairs and maintenance costs. |
• | Shrink costs increased approximately 25 basis points due to unfavorable inventory results in the current year. |
• | Distribution costs increased approximately 15 basis points resulting primarily from higher distribution center payroll costs. |
• | Merchandise cost, including freight, increased approximately 10 basis points resulting from higher domestic freight costs, partially offset by improved mark-on. |
• | Markdown costs decreased approximately 10 basis points resulting primarily from lower promotional markdowns in our Family Dollar banner. |
• | Store hourly payroll costs increased approximately 50 basis points as a result of the planned reinvestment of income tax savings. |
• | Depreciation and amortization costs decreased approximately 15 basis points as a result of leverage from the comparable store net sales increase for the Dollar Tree segment and assets becoming fully depreciated on the Family Dollar segment. |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||
August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||||
(in millions) | $ | % of Sales | $ | % of Sales | $ | % of Sales | $ | % of Sales | ||||||||||||||||||||
Net sales | $ | 2,768.8 | $ | 2,586.9 | $ | 5,553.2 | $ | 5,158.6 | ||||||||||||||||||||
Gross profit | 955.3 | 34.5 | % | 895.8 | 34.6 | % | 1,916.1 | 34.5 | % | 1,792.5 | 34.7 | % | ||||||||||||||||
Operating income | 297.7 | 10.8 | % | 289.1 | 11.2 | % | 627.9 | 11.3 | % | 604.5 | 11.7 | % |
• | Shrink costs increased approximately 25 basis points resulting from unfavorable inventory results in the first half of the year. |
• | Merchandise cost, including freight, increased approximately 10 basis points due primarily to higher domestic freight costs, partially offset by increased initial mark-on. |
• | Distribution costs increased approximately 10 basis points primarily resulting from higher distribution center payroll costs. |
• | Occupancy costs decreased approximately 15 basis points resulting from the leverage from the comparable store net sales increase in the first half of the year. |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||
August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||||
(in millions) | $ | % of Sales | $ | % of Sales | $ | % of Sales | $ | % of Sales | ||||||||||||||||||||
Net sales | $ | 2,756.8 | $ | 2,694.3 | $ | 5,526.1 | $ | 5,409.7 | ||||||||||||||||||||
Gross profit | 708.6 | 25.7 | % | 732.0 | 27.2 | % | 1,447.4 | 26.2 | % | 1,462.4 | 27.0 | % | ||||||||||||||||
Operating income | 84.8 | 3.1 | % | 130.4 | 4.8 | % | 192.2 | 3.5 | % | 203.8 | 3.8 | % |
• | Merchandise cost, including freight, increased approximately 85 basis points, primarily due to higher domestic freight costs, partially offset by increased initial mark-on. |
• | Distribution costs increased approximately 30 basis points resulting primarily from higher merchandising and distribution payroll-related costs. |
• | Shrink costs increased approximately 15 basis points resulting from unfavorable inventory results in the current year. |
• | Occupancy costs increased approximately 10 basis points resulting from the deleveraging effect of the flat comparable store net sales. |
• | Merchandise cost, including freight, increased approximately 30 basis points, primarily due to higher domestic freight costs, partially offset by increased initial mark-on. |
• | Occupancy costs increased approximately 25 basis points resulting from the deleveraging effect of the decrease in comparable store net sales. |
• | Shrink costs increased approximately 25 basis points resulting from unfavorable inventory results in the current year. |
• | Distribution costs increased approximately 20 basis points resulting primarily from higher merchandising and distribution payroll-related costs. |
• | Markdown costs decreased approximately 20 basis points resulting from fewer promotional markdowns. |
• | Payroll expenses increased approximately 55 basis points due primarily to increased store hourly payroll expenses as a result of the planned reinvestment of income tax savings. |
• | Store operating costs decreased approximately 10 basis points resulting from lower repairs and maintenance costs. |
• | Depreciation and amortization expense decreased approximately 10 basis points as a result of certain assets that were revalued upon the 2015 acquisition becoming fully depreciated and/or amortized. |
• | Payroll expenses increased approximately 60 basis points due primarily to increased store hourly payroll expenses as a result of the planned reinvestment of income tax savings. |
• | Depreciation and amortization expense decreased approximately 15 basis points as a result of certain assets that were revalued upon the 2015 acquisition becoming fully depreciated and/or amortized. |
26 Weeks Ended | ||||||||
August 4, | July 29, | |||||||
(in millions) | 2018 | 2017 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 768.8 | $ | 675.2 | ||||
Investing activities | (394.7 | ) | (269.6 | ) | ||||
Financing activities | (823.7 | ) | (579.1 | ) |
• | product safety matters, which may include product recalls in cooperation with the Consumer Products Safety Commission or other jurisdictions; |
Incorporated by Reference | ||||||||||
Exhibit | Exhibit Description | Form | Exhibit | Filing Date | Filed Herewith | |||||
3.1 | 8-K | 3.1 | 6/21/2013 | |||||||
3.2 | 8-K | 3.1 | 6/18/2018 | |||||||
31.1 | X | |||||||||
31.2 | X | |||||||||
32.1 | X | |||||||||
32.2 | X | |||||||||
101 | The following financial statements from the Company’s 10-Q for the fiscal quarter ended August 4, 2018, formatted in XBRL: (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements | X | ||||||||
DOLLAR TREE, INC. | |||
Date: | August 30, 2018 | By: | /s/ Kevin S. Wampler |
Kevin S. Wampler | |||
Chief Financial Officer | |||
(principal financial officer) |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Gary Philbin | |
Gary Philbin | |
President and Chief Executive Officer |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Kevin S. Wampler | |
Kevin S. Wampler | |
Chief Financial Officer |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 30, 2018 | /s/ Gary Philbin |
Date | Gary Philbin |
President and Chief Executive Officer |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 30, 2018 | /s/ Kevin S. Wampler |
Date | Kevin S. Wampler |
Chief Financial Officer |
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