Dollar Tree 2004 Annual Report Download

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2004 Annual Report
everything’s $1.00
The Art of the Possible

Table of contents

  • Page 1
    2004 Annual Report The Art of the Possible e v e r y t h i n g ' s $ 1 . 0 0

  • Page 2
    ... states, making it the only national dollar-store chain. Headquartered in Chesapeake,Virginia, the Company employs more than 35,000 associates nationwide, and continues to grow at the staggering rate 13 of opening almost one store a day. A network of nine distribution centers enables the Company...

  • Page 3
    Our Store Design An incredible amount of thought and attention goes into the design of each of our stores. From layout, flooring, in-store signage and easyreach shelving, to bright lights that convey a welcoming environment, to ergonomic checkouts, no detail is overlooked. Specialty fixtures and

  • Page 4
    additional end-caps provide particularly valuable space for premium product displays.We've recently added three-dimensional signage, morevibrant colors that emphasize the value in Dollar Tree, and lots of call-outs to remind customers that everything in the store truly is $1...believe it!

  • Page 5
    ... related to the merger with Dollar Express on M ay 5, 20 0 0. These costs, $3. 1 million net of taxes, reduced diluted net income per common share by $0.02 . (c) Comparable store net sales compare net sales for stores open throughout each of the two periods being compared. N et sales per store...

  • Page 6
    ... business to open up new possibilities for Dollar Tree and drive stronger results in the years ahead. Just some of our noteworthy accomplishments in 2004 include: • Successfully opening two new distribution centers: one in Ridgefield, Washington, the other in Joliet, Illinois. Seamlessly opening...

  • Page 7
    Bob Sasser President and centers made possible dramatic reductions in the average distance our trucks travel from distribution center (DC) to store, helping to partially mitigate the increase in fuel prices. • Becoming the first truly national dollar-store operator in the United States when we ...

  • Page 8
    ..., I want to spend more time ensuring each prospective new location meets our criteria for cost, size, sales and profit potential. Meanwhile, we'll continue to grow our business in new and existing markets, opening about one store per day. The Dollar Tree formula is pretty simple: New store openings...

  • Page 9
    ... sales by store enabling us to get the right product, in the right quantity to the stores that can sell it. This will help drive store productivity and increase inventory turns. We completed the last phase of our logistics network last year, opening two new distribution centers. O ur logistics...

  • Page 10
    ... Christmas Eve, the morning of Thanksgiving, or on your way home from work. At night, our bright lights are a beacon that says, "We're open, c'mon in!" The design of our stores also brings convenience front and center to the shopping experience. A substantial number of Dollar Tree stores are located...

  • Page 11
    ... to all the fun stuff, our stores also are a destination for school projects. After the school day lets out, just pop on by Dollar Tree lickety-split to pick up all the items for junior's assignments. Chances are you may see a school teacher, while in the store, shopping for classroom supplies. No...

  • Page 12
    ... purchase at our stores to be fresh, 100% of the time. And, through the use of our new POS systems, customers also can depend on us to be in-stock. So we're offering quality goods at a great price, on brands customers trust, with guaranteed freshness. That' s "The Art of the Possible" at Dollar Tree...

  • Page 13
    ... for healthcare, fuel and many other items are rising, consumers are searching for ways to make their dollar stretch a little further. We like to think we make life a little more affordable. VA LU E THEIR PRICE Value $62.30 OUR PRICE $33.44 DOLLAR TREE STORES, IN C. • 2004 AN N UAL REPORT 9

  • Page 14
    ...rest of our merchandise that really produces a thrilling shopping experience. Customers are delighted to find merchandise they' d never expect to see in our stores, and they're equally thrilled when they get to the register and are reminded each item is just $1. The living room pictured in the inset...

  • Page 15
    ... between the decorated and undecorated rooms is amazing. Even more amazing is that to go from bland to beautiful cost less than $80; that's The Art of the Possible. Everything you need and more, for just a dollar; that's The Thrill of the Hunt. DOLLAR TREE STORES, IN C. • 2004 AN N UAL REPORT 11

  • Page 16
    ...! Headquarters Dollar Tree Stores, Inc. 500 Volvo Parkway Chesapeake,Virginia 23320 Phone (757) 321-5000 Briar Creek, Pennsylvania Chicago, Illinois area Stockton, California Ridgefield, Washington Chesapeake, Virginia Marietta, Oklahoma Salt Lake City, Utah Olive Branch, Mississippi Savannah...

  • Page 17
    ... the effect on gross profit margin and sales; • the capabilities of our inventory supply chain technology, planned labor management system and other new systems; • the future reliability of, and cost associated with, our sources of supply, particularly imported goods such as those sourced from...

  • Page 18
    ... in operating and merchandise costs including shipping rates, freight costs, fuel costs, wage levels, inflation, competition and other adverse economic factors because we sell goods at the fixed $1.00 price point. • O ur merchandise mix relies heavily on imported goods. An increase in the cost of...

  • Page 19
    ... square feet). We believe this size allows us to achieve our objectives in the markets in which we plan to expand. Larger stores take longer to negotiate, build out and open and generally have lower net sales per square foot than our smaller stores. DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT...

  • Page 20
    ... environment that invites customers to shop longer and buy more. W hen our larger stores become the majority of our store base, which we expect to occur by the end of 2005, we believe our net sales per square foot will begin to rise. We must control our merchandise costs, inventory levels and our...

  • Page 21
    ... points due to deleveraging associated with the low comparable store net sales increase and the increase in rent expense in 2004 due to lease accounting changes Fiscal years ended New stores Acquired stores Expanded or relocated stores Closed stores DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT...

  • Page 22
    ... offsetting these rate increases was an approximate 15 basis point decrease in store payroll costs in the current year due to continued improvements in store-level labor productivity. Operating Income. D ue to the reasons discussed above, operating income margin decreased to 9.4% in 2004 compared to...

  • Page 23
    ... tax rate was 38.5% in 2003 and 2002. Fiscal years ended New stores Acquired stores Expanded or relocated stores Closed stores Of the 3.6 million selling square foot increase in 2003, approximately 0.9 million selling square feet was added by expanding existing stores. Gross Profit. Gross profit...

  • Page 24
    ... costs. O ur estimated capital expenditures for fiscal 2005 are between $125.0 and $140.0 million, including planned expenditures for new and expanded stores and investments in technology. We believe that we can adequately fund our working capital 20 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT

  • Page 25
    ... as current liabilities. We pay interest monthly based on a variable interest rate, which was 2.57% at January 29, 2005. The bonds are secured by a $19.3 million letter of credit issued by one of our existing lending banks. The letter DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT 21 Long-Term...

  • Page 26
    ...using the retail inventory method on a weighted-average basis. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are computed by applying a calculated cost-to-retail ratio to the retail value of 22 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT

  • Page 27
    ... net sales, operating income and net income and expect this trend to continue. O ur results of operations may also fluctuate significantly as a result of a variety of factors, including: • shifts in the timing of certain holidays, especially Easter; DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT...

  • Page 28
    MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • the timing of new store openings; • the net sales contributed by new stores; • changes in our merchandise mix; and • competition. O ur highest sales periods are the Christmas and Easter seasons. Easter was...

  • Page 29
    ... grants of employee stock options, to be recognized in the financial statements based on their fair values. Under the provisions of this statement, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and...

  • Page 30
    ..., internal control over financial reporting. Effective January 1, 2003, the Company implemented the provisions of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, as described in Note 12. Norfolk, Virginia April 12, 2005 26 DOLLAR TREE STORES...

  • Page 31
    ... STATEMENTS OF OPERATIONS (In thousands, except per share data) Net sales Cost of sales (Note 12) Gross profit Selling, general and administrative expenses (Notes 8 and 12) Operating income (loss) Interest income Interest expense Changes in fair value of non-hedging interest rate swaps (Note...

  • Page 32
    ...capital leases, excluding current installments (Note 2) Deferred tax liabilities (Note 3) O ther liabilities (Notes 6 and 8) Total liabilities Shareholders' equity (Notes 6, 7 and 9): Common stock, par value $0.01. 300,000,000 shares... - $1,501,519 28 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT

  • Page 33
    ... of stock under Employee Stock Purchase Plan and other plans (Note 9) Exercise of stock options, including income tax benefit of $5,620 (Note 9) Repurchase and retirement of shares (Note 7) Restricted stock amortization (Note 9) Settlement of merger-related contingencies Balance at January 31, 2004...

  • Page 34
    ...and, the historical amortization of the deferred financing costs recognized previously by the variable-interest entity and the write-off of a deferred rent liability related to the lease. See accompanying Notes to Consolidated Financial Statements. 30 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT

  • Page 35
    ... Dollar Tree, Dollar Bills, Dollar Express, Only One Dollar, and Only $One. O ur stores average approximately 7,475 selling square feet. The Company' s headquarters and one of its distribution centers are located in Chesapeake, Virginia. The Company also operates distribution centers in Mississippi...

  • Page 36
    ... from operating activities as a result of the reclassification. Merchandise Inventories Merchandise inventories at the distribution centers are stated at the lower of cost or market, determined on a weighted average cost basis. Cost is assigned to store inventories using the retail inventory method...

  • Page 37
    ... sales revenue at the time a sale is made to its customer. Cost of Sales The Company includes the cost of merchandise, warehousing and distribution costs, and certain occupancy costs in cost of sales. Pre-Opening Costs The Company expenses pre-opening costs for new, expanded and relocated stores...

  • Page 38
    ... Stock Issued to Employees, and related Interpretations in accounting for its fixed stock option plans. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based...

  • Page 39
    ...129,032 $123,738 dates through 2016. Amortization expense related to the non-competition agreements and favorable lease rights was $1,551, $1,300, $40 and $746 for the years ended January 29, 2005 and January 31, 2004, the one-month period ended February 1, 2003 and the year ended December 31, 2002...

  • Page 40
    ... the right to purchase the leasehold improvements at September 30, 2005. In order to exercise this right, the Company' s lease obligation increased by $200. The total amount of the 36 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT $25,000 interest rate swap $19,000 interest rate swap $10,000...

  • Page 41
    ... tax benefit O ther, net Effective tax rate 3.6 (1.1) 37.5% 3.5 - 38.5% 3.5 - 38.5% 3.5 - 38.5% The rate reduction in "Other, net" in the above table consists primarily of a one-time tax benefit for the resolution of a tax uncertainty in 2004. DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT...

  • Page 42
    ... rentals that may be paid under certain store leases based on a percentage of sales in excess of stipulated amounts. Future minimum lease payments have not been reduced by expected future minimum sublease rentals of $1,239 under operating leases. 38 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT

  • Page 43
    ... closed stores. The leases for the two distribution centers expire in June 2005 and September 2005. The Company accounts for abandoned lease facilities in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Facilities are considered abandoned on the date...

  • Page 44
    ... and to purchase short-term, state and local government-sponsored municipal bonds. The Company' s $150,000 revolving credit facility (O ld Facility) was terminated concurrent with entering into 40 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT the Facility. The net debt issuance costs related to...

  • Page 45
    ... of SFAS No. 133. In 2001, the Company entered into a $25,000 interest rate swap agreement (swap) to manage the risk associated with interest rate fluctuations on a portion of the Company' s variable-interest entity debt. In March 2004, the Company repaid all of the variable-interest entity debt...

  • Page 46
    ... 31, 2002, respectively, 1,457,329, 203,015, 2,171,350 and 1,704,153 stock options are not included in the calculation of the weighted average number of shares and dilutive potential shares outstanding because their effect would be anti-dilutive. 42 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT

  • Page 47
    ...March 2005 authorization. NOTE 8 - EMPLOYEE BENEFIT PLANS Profit Sharing and 401(k) Retirement Plan The Company maintains a defined contribution profit sharing and 401(k) plan which is available to all employees over 21 years of age who have completed one year of service in which they have worked at...

  • Page 48
    ... the market price of the Company' s stock at the date of grant, unless a higher price is established by the Board of Directors, and an option' s maximum term is 10 years. Options granted under the SIP generally vested over a three-year period. In exchange for their options to purchase Dollar Express...

  • Page 49
    ... the EIP discussed above. The exercise price of each stock option granted equals the market price of the Company' s stock at the date of grant. The options generally vest immediately. The 2003 Director Deferred Compensation Plan permits any of the Company' s directors who receive a retainer or other...

  • Page 50
    ...shares awarded was approximately $125 and was recorded as a component of operating expenses during 2002. Employee Stock Purchase Plan Under the Dollar Tree Stores, Inc. Employee Stock Purchase Plan (ESPP), the Company is authorized to issue up to 759,375 shares of common stock to eligible employees...

  • Page 51
    ... depreciation related to the distribution center assets and, the historical amortization of the deferred financing costs recognized previously by the variableinterest entity and the write-off of a deferred rent liability related to the lease. DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT 47

  • Page 52
    ...year or for any future period. First Q uarter Fiscal 2004: Net sales Gross profit Operating income Net income Diluted net income per share Stores open at end of quarter Comparable store net sales change Fiscal 2003: Net sales Gross profit Operating... 48 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT

  • Page 53
    ...Norfolk,VA 23510 STOCK LISTING Dollar Tree's common stock has been traded on the NASDAQ Stock Market under the symbol "DLTR" since our initial public offering on March 6, 1995. The following table gives the high and low sales prices of our common stock for the fiscal years 2004 and 2003. STOCK PRICE...

  • Page 54
    500 Volvo Parkway Chesapeake,Virginia 23320 Phone (757) 321-5000 www.DollarTree.com