FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: January 28, 2003
Date of Earliest Event Reported: January 23, 2003
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER: 0-25464
VIRGINIA 54-1387365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Volvo Parkway
Chesapeake, VA 23320
(Address of principal executive offices)
Registrant's telephone number, including area code: (757) 321-5000
Item 9. Regulation FD Disclosure
The following summarizes information discussed in Dollar Tree Stores, Inc.'s
(the Company's) publicly available telephone conference call on January 23,
2003, regarding its fourth quarter 2002 earnings results. In addition, the
Company's fourth quarter earnings press release dated January 23, 2003 is
attached as Exhibit 99.1. The Company is filing this Form 8-K pursuant to the
Securities and Exchange Commission's Regulation FD.
On January 6, 2003, the Company's Board of Directors approved a switch from a
calendar year to a traditional retail fiscal calendar, effective for the fiscal
year beginning February 2, 2003. The Company has filed a Form 8-K that presents
the first three quarters of 2002 on the new fiscal calendar basis; later this
year, the Company expects to file a Form 8-K presenting its fiscal fourth
quarter of 2002.
2003 Outlook
Net Sales and Earnings
Based on our plans for a 22% selling square footage growth, we expect net
sales and earnings to increase 15% or more in fiscal year 2003 compared to
fiscal year 2002. We are also planning a modest increase in underlying
comparable store net sales of no more than 1%. We anticipate that new store
growth will provide the majority of our sales increase; most of our stores
will open in the first three quarters of the fiscal year. Our sales seasonality
is expected to be similar to fiscal year 2002.
As disclosed in our sales release, we expect net sales of $590-$610 million for
the first fiscal quarter of 2003. The first fiscal quarter includes Easter,
which falls three weeks later this year, on April 20, 2003.
Gross Margin
We will strive to maintain gross margin as high as possible but there is
pressure on it, as a result of increased domestic merchandise in our mix. Our
domestic merchandise, including consumable goods, generally costs more than our
imported merchandise.
Operating Expenses
In fiscal year 2003, we will incur additional expense in testing a program to
improve brand awareness in selected markets. The results of this program should
provide us with information on how to proceed in the future, to reach the
most customers and to generate the highest sales increase.
Depreciation will remain relatively high in fiscal year 2003 and 2004 as we
continue to invest in technology-related assets. We will continue to
convert existing stores to point-of-sale, add enhancements to our supply chain
systems and update our store hardware. We anticipate that in fiscal year 2005,
at the earliest, we will begin to reduce the growth of our technology assets to
be more in line with overall company growth. Depreciation
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expense will also increase as a result of higher costs associated with building
larger stores.
To offset increased costs discussed above, we have put into place a number of
cost-saving programs to reduce operating expenses. We expect to leverage workers
compensation in fiscal year 2003 and address other cost-saving measures related
to bank-related fees, store supplies, repairs and maintenance and store utility
usage. In addition, we will continue to use systems to improve labor
management. We are developing new models for store openings and leasing costs,
and we are finding ways to reduce our tax burdens. We plan to use the money
saved in these areas to invest in areas that will directly increase sales.
Operating Margin
Given our sales, gross margin and operating expense outlook, it will be
difficult to improve operating margin.
Capital Expenditures
Capital expenditures for fiscal year 2003 are expected to be $160-$170 million,
excluding any new distribution center costs. Generally, approximately 80% of
our capital expenditures are store related. In addition, as we previously
disclosed, we have over $113 million in a synthetic lease facility for three
of our distribution centers. We are evaluating the new Financial Accounting
Standards Board Interpretation No. 46, Consolidation of Variable Interest
Entities and will decide our course of action in the coming weeks. If our
distribution centers are included on our balance sheet, depreciation expense
will increase approximately $5 million annually, which amount is not included
in our planned 15% earnings increase. Additional details regarding our
synthetic lease are available in our most recent Form 10-K and Form 10-Q.
Real Estate
New stores opened in calendar 2002 averaged 7,800 selling square feet. We
expect new stores opening in fiscal year 2003 to average nearly 9,000 selling
square feet. We plan to add approximately the same amount of total selling
square footage in fiscal year 2003 as we did in fiscal year 2002, with larger
stores and more expansions. Our stores opened in calendar year 2001, most of
which are large format stores, have a cash contribution margin percentage that
is better than the corporate average. We will focus on increasing sales per
selling square foot while reducing costs per selling square foot in our stores.
Public Reporting
In the future, we will provide an interim quarter sales update, which will take
place approximately 30 days before our sales release. The purpose of this
update is to give our investors an additional communication during the quarter,
between the previous quarter's earnings release and the current quarter's sales
release. The update will take the form of a pre-recorded message that can be
accessed by dialing (757) 321-5TRE and will be available for approximately
four days. We will file the information on a Current Report on Form 8-K, so it
will be accessible through our website and the SEC's website. The update will
give an indication of whether we are above, below or on-plan for sales, as
3
well as other information, as appropriate. The first interim sales update is
expected to be available the evening of April 7, 2003.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS:
This filing contains "forward-looking statements" as that term is used in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
address future events, developments or results and typically use words such as
believe, anticipate, expect, intend, plan or estimate. For example, our
forward-looking statements include statements regarding:
o future net sales and earnings, including comparable store net sales;
o seasonality of our sales and our merchandise mix;
o gross margin;
o future operating expenses and our efforts to control them;
o depreciation expenses related to our supply chain and technology
initiatives;
o capital expenditure plans;
o the effect of our synthetic lease under new accounting interpretations;
o planned store-size growth; and
o selling square-footage growth.
These forward-looking statements are subject to numerous risks and uncertainties
that may affect us including:
o adverse economic conditions, such as declining consumer confidence or
spending, or bad weather;
o possible difficulties in meeting our net sales and other expansion goals
and anticipated comparable store net sales results,
which may result in loss of leverage of operating expenses;
o increase in the cost of or disruption of the flow of our imported goods;
o the difficulties in managing our aggressive growth plans, including
opening stores on a timely basis;
o competition and possible increases in merchandise costs, shipping rates,
freight costs, or other operating costs such as wage levels;
o the capacity and performance of our distribution network and our ability
to expand its capacity in time to support our net sales growth; and
o changes in accounting standards.
For a discussion of the risks, uncertainties and assumptions that could affect
our future events, developments or results, you should carefully review the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations'' and "Business'' sections in our Annual Report on Form 10-K filed
March 14, 2002. Also, carefully review "Risk Factors'' in our most recent
prospectuses filed November 15, 2000
4
and August 3, 2000. In light of these risks and uncertainties, the future
events, developments or results described by our forward-looking statements in
this document could turn out to be materially and adversely different from
those we discuss or imply.
We are not obligated to release publicly any revisions to any forward-looking
statements contained in this filing to reflect events or circumstances
occurring after the date of this report or to reflect the occurrence of future
events and you should not expect us to do so.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit # Description
99.1 Dollar Tree Stores, Inc.'s press release regarding earnings
results for the fourth quarter and annual year ended
December 31, 2002.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
DATE: January 28, 2003
DOLLAR TREE STORES, INC.
By:
--------------------------------
Frederick C. Coble
Chief Financial Officer
6
Exhibit 99.1
PRESS RELEASE
DOLLAR TREE STORES, INC.
REPORTS RECORD FOURTH-QUARTER AND ANNUAL EARNINGS PER SHARE
CHESAPEAKE, Va. - January 23, 2003 - Dollar Tree Stores, Inc. (Nasdaq: DLTR),
the nation's leading retailer of variety merchandise at the $1.00 price point,
reported 2002 earnings per share of $1.35, a 24% increase compared to 2001.
Fourth-quarter 2002 earnings per share were $0.76.
"Dollar Tree produced record sales and earnings in 2002, despite a challenging
retail environment," said CEO Macon Brock, Jr. "Management's focus on the supply
chain, inventory control, and efficiency served us well throughout the year. We
improved our margins. We also exceeded our square footage growth target for the
year, while growing our available cash by nearly $100 million. This provides us
with the flexibility to continue our growth plans, and we foresee another year
of continued profitable growth in 2003. Our management team's cost-conscious
philosophy and conservative planning positions us well in these uncertain
times."
For the year, gross margin increased to 36.4% compared to 36.0% in 2001,
primarily due to improved shrink. Higher merchandise costs were partially offset
by improvements in freight costs. Operating expenses, as a percentage of sales,
were 25.6% compared to 25.9% in 2001, primarily due to improvements in payroll
and related costs, which were somewhat offset by higher depreciation expense.
Pursuant to the requirements of SFAS 142, the Company ceased amortizing goodwill
effective January 1, 2002; prior year's operating expenses included $2.0 million
of goodwill amortization. Operating margin increased to 10.9% in 2002, compared
to 10.3% in 2001.
For the fourth quarter, gross margin was 37.7% compared to 38.2% in last year's
fourth quarter, primarily due to higher merchandise costs, including freight,
and loss of leverage on occupancy costs. Operating expenses, as a percentage of
sales, improved 14 basis points to 20.6%, primarily due to improvements in
payroll and related costs, which were somewhat offset by higher depreciation
expense.
During the quarter, the Company opened its first stores in Maine and South
Dakota, bringing to 40 the number of states it serves. The Company also
completed construction of its Marietta, Oklahoma distribution center, which it
expects to begin operating in February, 2003.
As previously reported, the Company has adopted a fiscal calendar, and its new
fiscal year begins February 2, 2003. For fiscal 2003, the Company's projected
22% selling square footage growth will be supported by a $160-170 million
capital expenditure budget, excluding any new distribution centers. The Company
expects the average new store it opens in 2003 to be nearly 9,000 selling square
feet. Based on these plans, and assuming comparable-store sales remain subdued,
the Company is targeting sales and earnings growth to exceed 15% in fiscal 2003.
Beginning this year, the Company will provide a pre-recorded interim sales
update each quarter. Investors can access this information by dialing (757)
321-5TRE. The first interim update will be available the evening of Monday,
April 7, 2003, and will remain on-line until Friday, April 11, 2003.
On Thursday, January 23, 2003, Dollar Tree will host a conference call at 4:45
p.m. EST to discuss its calendar year 2002 results. The telephone number for the
call is (610) 769-8817, passcode DLTR. A recorded version of the call will be
available through midnight Tuesday, January 28 and may be accessed by dialing
(402) 220-0194, passcode DLTR. A webcast of the call is accessible through
Dollar Tree's website, www.DollarTree.com, as well as at Vcall's website,
www.Vcall.com, and will remain on-line until midnight Tuesday, January 28.
Dollar Tree Stores, Inc. operates 2,263 stores in 40 states as of December 31,
2002. In 2002, the Company opened 318 stores, closed 30, and expanded or
relocated 111. At year-end 2002, the Company's retail selling square footage
totaled approximately 13.0 million, up 2.9 million from December 31, 2001.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS: This press release contains
"forward-looking statements" as that term is used in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements address future events,
developments or results and typically use words such as believe, anticipate,
expect, intend, plan or estimate. For example, our forward-looking statements
include statements regarding capital expenditures, square footage, average store
size, comparable-store sales assumptions, sales and earnings growth for 2003, as
well as the date the Company expects its Oklahoma distribution center to
commence operations.
For a discussion of the risks, uncertainties and assumptions that could affect
our future events, developments or results, you should carefully review the
"Risk Factors," "Business," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections in our Annual Report on
Form 10-K filed March 14, 2002 and in our Quarterly Report on Form 10-Q filed
November 14, 2002. Also, carefully review "Risk Factors" in our most recent
prospectuses filed November 15, 2000 and August 3, 2000. In light of these risks
and uncertainties, the future events, developments or results described by our
forward-looking statements in this document could turn out to be materially and
adversely different from those we discuss or imply.
We are not obligated to release publicly any revisions to any forward-looking
statements contained in this press release to reflect events or circumstances
occurring after the date of this report and you should not expect us to do so.
CONTACT: Dollar Tree Stores, Inc., Chesapeake
Erica Robb or Adam Bergman, 757/321-5000
www.DollarTree.com
DOLLAR TREE STORES, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
December 31, December 31,
2002 2001
---- ----
Cash and cash equivalents $ 292,192 $ 236,653
Short-term investments 43,780 -
Merchandise inventories (a) 357,665 296,473
Other current assets 22,503 27,653
---------- ----------
Total current assets 716,140 560,779
---------- ----------
Property and equipment, net 344,322 279,011
Goodwill, net 38,358 38,358
Other assets, net 17,557 23,900
---------- ----------
Total assets $ 1,116,377 $ 902,048
========== ==========
Current portion of long-term debt $ 25,000 $ 25,000
Accounts payable 59,451 58,091
Income taxes payable 28,041 38,848
Other current liabilities 94,019 79,083
---------- ----------
Total current liabilities 206,511 201,022
---------- ----------
Long-term debt, excluding current portion 6,000 12,000
Other liabilities 48,462 37,290
---------- ----------
Total liabilities 260,973 250,312
---------- ----------
Shareholders' equity 855,404 651,736
---------- ----------
Total liabilities and shareholders' equity $ 1,116,377 $ 902,048
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STORE DATA:
Number of stores open at end of period 2,263 1,975
Total selling square footage (in thousands) 13,042 10,127
Certain 2001 amounts have been reclassified for comparability with the 2002
financial statement presentation.
(a) In April 2002, the Company changed its method of accounting for inventories
in its distribution centers from the first-in first-out method to the weighted
average cost method. The change did not have a material effect on the Company's
balance sheet or 2002 operating results.
DOLLAR TREE STORES, INC.
Condensed Consolidated Income Statements
For the Three Months and Twelve Months Ended December 31
(Dollars in thousands, except per share data)
(Unaudited)
Fourth Quarter Year-to-Date
-------------- ------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 827,481 $ 714,846 $ 2,329,188 $ 1,987,271
Cost of sales (a) 515,464 441,732 1,481,232 1,271,314
Gross profit 312,017 273,114 847,956 715,957
37.7% 38.2% 36.4% 36.0%
Selling, general & administrative expenses (b) 170,435 148,253 594,035 512,092
20.6% 20.7% 25.5% 25.8%
Operating income 141,582 124,861 253,921 203,865
17.1% 17.5% 10.9% 10.3%
Interest expense, net (292) (1,311) (993) (1,891)
Other income (expense) (c) 142 251 (1,469) (1,723)
Earnings before income taxes 141,432 123,801 251,459 200,251
17.1% 17.3% 10.8% 10.1%
Income tax expense 54,452 47,713 96,812 77,170
Net earnings 86,980 76,088 154,647 123,081
10.5% 10.6% 6.6% 6.2%
Net earnings per share:
Basic $ 0.76 $ 0.68 $ 1.36 $ 1.10
Weighted average number of shares 114,152 112,309 113,632 112,238
Diluted $ 0.76 $ 0.67 $ 1.35 $ 1.09
Weighted average number of shares 114,621 113,108 114,543 112,990
(a) In April 2002, the Company changed its method of accounting for inventories
in its distribution centers from the first-in first-out method to the weighted
average cost method. The change did not have a material effect on the Company's
balance sheet or 2002 operating results.
(b) The Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, which requires that goodwill amortization cease effective
January 1, 2002. As a result, no goodwill amortization was recorded in 2002.
Fourth quarter and year-to-date 2001 includes $0.5 million and $2.0 million of
goodwill amortization, respectively. For the three months ended December 31,
2001, diluted earnings per share would have been $0.68 and for the twelve months
ended December 31, 2001, basic and diluted earnings per share would have been
$1.11 and $1.10, respectively, without the after-tax effect of goodwill
amortization.
(c) Amount represents the earnings impact of recording non-hedging interest rate
swaps to market value in accordance with Statement of Financial Accounting
Standards No. 133, which was effective January 1, 2001.
DOLLAR TREE STORES, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Year ended Year ended
December 31, December 31,
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 154,647 $ 123,081
---------- ----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 71,615 53,763
Other non-cash adjustments 30,517 893
Changes in working capital (49,902) 989
---------- ----------
Total adjustments 52,230 55,645
---------- ----------
Net cash provided by operating activities 206,877 178,726
---------- ----------
Cash flows from investing activities
Capital expenditures (136,129) (121,566)
Purchase of short-term investments (60,280) -
Proceeds from maturities of short-term investments 16,500 -
Settlement of merger-related contingencies 6,688 -
Acquisition of favorable lease rights (813) -
Proceeds from sale of property and equipment 216 98
---------- ----------
Net cash used in investing activities (173,818) (121,468)
---------- ----------
Cash flows from financing activities:
Repayment of long-term debt and facility fees (6,025) (6,239)
Principal payments under capital lease obligations (3,971) (3,562)
Proceeds from stock issued pursuant to stock-based
compensation plans 32,476 11,805
Repurchase of common stock - (3,775)
Net cash provided by (used in) financing activities ---------- ----------
22,480 (1,771)
---------- ----------
Net increase in cash and cash equivalents 55,539 55,487
Cash and cash equivalents at beginning of year 236,653 181,166
---------- ----------
Cash and cash equivalents at end of year $ 292,192 $ 236,653
========== ==========