Dollar Tree 2006 Annual Report Download - page 19

Results of Operations
The following table expresses items from our consolidated statements of operations, as a percentage of net sales:
Year Ended Year Ended Year Ended
February 3, January 28, January 29,
2007 2006 2005
Net sales 100.0% 100.0% 100.0%
Cost of sales 65.8% 65.5% 64.4%
Gross profit 34.2% 34.5% 35.6%
Selling, general and administrative expenses 26.4% 26.2% 26.2%
Operating income 7.8% 8.3% 9.4%
Interest income 0.2% 0.2% 0.1%
Interest expense (0.4%) (0.4%) (0.3%)
Income before income taxes 7.6% 8.1% 9.2%
Provision for income taxes (2.8%) (3.0%) (3.4%)
Net income 4.8% 5.1% 5.8%
DOLLAR TREE STORES, INC. • 2006 ANNUAL REPORT 17
Of the 3.3 million selling square foot increase in
2006, approximately 1.2 million resulted from the
acquisition of the Deal$ stores and 0.4 million was
added by expanding existing stores.
Gross Profit. Gross profit margin decreased to 34.2%
in 2006 compared to 34.5% in 2005. The decrease
was primarily due to a 35 basis point increase in mer-
chandise cost, including inbound freight. This increase
in merchandise cost was due to a slight shift in mix to
more consumables, which have a lower margin, high-
er cost merchandise at our Deal$ stores and increased
inbound domestic freight costs.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses, as a percentage
of net sales, increased to 26.4% for 2006 as com-
pared to 26.2% for 2005. The increase is primarily
due to the following:
• Payroll and benefit related costs increased 35
basis points due to increased incentive compensa-
tion costs resulting from better overall company
performance in the current year as compared to
the prior year and increased stock compensation
expense, partially offset by lower workers’ com-
pensation costs in the current year.
FISCAL YEAR ENDED FEBRUARY 3, 2007 COMPARED TO
FISCAL YEAR ENDED JANUARY 28, 2006
Net Sales. Net sales increased 16.9%, or $575.5
million, in 2006 compared to 2005, resulting from
sales in our new and expanded stores, including 138
Deal$ stores acquired in March 2006 and the 53
weeks of sales in 2006 versus 52 weeks in 2005,
which accounted for approximately $70 million of
the increase. Our sales increase was also impacted by
a 4.6% increase in comparable store net sales for the
year. This increase is based on a 53-week comparison
for both periods. Comparable store net sales are posi-
tively affected by our expanded and relocated stores,
which we include in the calculation, and, to a lesser
extent, are negatively affected when we open new
stores or expand stores near existing ones.
The following table summarizes the components
of the changes in our store count for fiscal years
ended February 3, 2007 and January 28, 2006.
February 3, January 28,
2007 2006
New stores 190 197
Deal$ acquisition 138 —
Acquired leases 21 35
Expanded or relocated stores 85 93
Closed stores (44) (53)