Dollar Tree 2009 Annual Report Download - page 20

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Management’s Discussion And Analysis Of Financial Condition
And Results Of Operations
Operating Income.฀Due฀to฀the฀reasons฀discussed฀
above,฀operating฀income฀margin฀was฀7.9%฀in฀2008฀
compared฀to฀7.8%฀in฀2007.฀
Income Taxes.฀Our฀effective฀tax฀rate฀was฀36.1%฀in฀
2008฀compared฀to฀37.1%฀in฀2007.฀The฀lower฀rate฀in฀
2008฀reects฀the฀recognition฀of฀certain฀tax฀benets฀
and a lower blended state tax rate resulting from the
settlement฀of฀state฀tax฀audits฀in฀2008฀which฀allowed฀us฀
to release income tax reserves and accrue less interest
expense฀on฀tax฀uncertainties.฀These฀benets฀to฀the฀tax฀
rate were partially offset by a reduction in tax-exempt
interest฀income฀in฀2008.
Liquidity and Capital Resources
Our business requires capital to build and open new
stores, expand our distribution network and operate
existing stores. Our working capital requirements for
existing stores are seasonal and usually reach their
peak in September and October. Historically, we have
satised฀our฀seasonal฀working฀capital฀requirements฀
for existing stores and have funded our store opening
and distribution network expansion programs from
internally generated funds and borrowings under our
credit facilities.
Gross Profit.฀Gross฀prot฀margin฀decreased฀to฀34.3%฀
in฀2008฀compared฀to฀34.4%฀in฀2007.฀The฀decrease฀was฀
primarily฀due฀to฀a฀30฀basis฀point฀increase฀in฀merchan-
dise cost, including inbound freight, resulting from
an increase in the sales mix of higher cost consumer
product merchandise and higher diesel fuel costs
compared฀with฀2007.฀Partially฀offsetting฀this฀increase฀
was฀a฀20฀basis฀point฀decrease฀in฀shrink฀expense฀due฀
to฀favorable฀adjustments฀to฀shrink฀estimates฀based฀on฀
actual inventory results during the year.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses, as a
percentage฀of฀net฀sales,฀decreased฀to฀26.4%฀for฀2008฀
compared฀to฀26.6%฀for฀2007.฀The฀decrease฀is฀primarily฀
due to the following:
•฀฀Depreciation฀expense฀decreased฀25฀basis฀points฀
primarily due to the leveraging associated with the
comparable store net sales increase for the year.
•฀฀Payroll-related฀expenses฀decreased฀10฀basis฀points฀
primarily฀as฀a฀result฀of฀lower฀eld฀payroll฀costs฀as฀a฀
percentage of sales, due to the leveraging from the
comparable฀store฀net฀sales฀increase฀in฀2008.฀
•฀฀Partially฀offsetting฀these฀decreases฀was฀an฀approxi-
mate฀10฀basis฀point฀increase฀in฀store฀operating฀costs฀
due to increases in repairs and maintenance and
utility costs in the current year.
18฀฀฀DOLLAR฀TREE,฀INC.฀•฀2009฀Annual฀Report