Dollar Tree 2007 Annual Report Download - page 5

in terms of transaction size. We expect penetration of Visa credit to continue
increasing throughout 2008.
In terms of profitability, we achieved 7.8% operating margin in 2007, which
remains among the highest in the extreme-value retail sector. Gross margin
improved 20 basis points over 2006, driven by higher merchandise margins.
Our second objective was to continue growing our store base, and
refining our real estate processes. Our goals are to open stores earlier in the
year, to maximize their productivity through improved site selection, improve
the construction process and ultimately to increase our return on invested
capital. In fiscal 2007 we opened 240 New Stores, expanded and relocated
102 existing stores, and increased retail square footage by 8%. Our new stores
averaged just under 11,000 square feet, a size that is within our targeted
range, and ideal from the customers’ perspective, allowing them to see a full
display of merchandise in an open and bright shopping environment, while
keeping their shopping trip quick and convenient. We ended fiscal 2007 with
3,411 stores and room to grow. We believe that we can operate 5,000 to
7,000 Dollar Tree stores across the country and our Deal$ “multi-price point”
concept has the potential to expand that number.
Third, leverage our infrastructure investment. Significant investments in
infrastructure over the past few years are contributing to improved performance.
Our logistics network is highly automated, efficient and capable of delivering
product to all 48 contiguous States and we have capacity to support growth
to $6.7 billion of annual sales without additional investment. Our technology
infrastructure and particularly our investment in Point of Sale applications has
given us the ability to improve our flow of product to stores, reduce back
room inventory and improve operating efficiency. Our Automated Store
Replenishment tool is improving our in-stock of basics. Demand driven
allocations of new product consistent with sales trends is driving store sales and
our sell-through of seasonal product is increasing. These investments are
enabling us to improve the efficiency and increase the capacity of our logistics
network, lower our per-store inventory investment and increase inventory turns.
Inventory per store has declined by more than 16% in the past three years, and
finished 2007 essentially unchanged from last year. In addition, inventory turns
increased 25 basis points in 2007, on top of a 45 basis point increase the previ-
ous year, and our in-stock position on basics continues to improve.
Fourth, refine the multi-price model at Deal$. We acquired the Deal$
chain in 2006, as a platform to develop a multi-price format, lifting the
DOLLAR TREE, INC. • 2007 ANNUAL REPORT 3
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