This summary is based on the first quarter fiscal 2006 earnings call conducted by Dollar Tree Stores, Inc. (DLTR: chart) on May 24, 2006.
Key Investors Issues
-Net income was $32.9 million as compared to $29 million in the first quarter of 2005.
-EPS increased 19% to 31 cents as against 26 cents in the first quarter of 2005.
-Sales grew to $856.5 million as compared to $749.1 million in the first quarter of 2006.
-EPS for the second quarter is expected to be in the range of 24 cents to 27 cents.
-EPS for full year 2006 is expected to be in the range of $1.70 to $1.82.
-Comparable store sales increased by 4%.
-At the end of the quarter, cash and investments were approximately $287 million.
-The acquisition of 138 Deal$ Stores was completed during the quarter.
First Quarter Fiscal 2006 Financial Highlights
Sales grew 14.3% to $856.5 million as compared to $749.1 million in the first quarter last year.
Comparable store sales increased by 4%. The increase was attributable to a 3.4% increase in transaction size and a 0.6% increase in traffic. Higher fuel prices had a negative impact on several initiatives and the same is expected to continue through the rest of the year.
Sales were driven by seasonal excitement.
Valentine''s boosted the sales of helium-filled balloons, candies and long-stem red roses. Late Easter and better weather conditions contributed to longer selling seasons and better sales. Seasonal business is important for the company and tends to have better than average margins.
There was an increase in sale of basic products.
The company added a wider selection of merchandise that people need every day leading to increased foot traffic. The initial markup was slightly lower but the merchandise moved faster. These were incremental sales and the company believes the increase in shopping frequency and average ticket will offset the lower initial markup in the long term.
The company’s frozen initiatives were on schedule.
There were over 250 stores with frozen and refrigerated products compared to 61 stores in the first quarter last year. The company plans to end the year with 500 stores depending on construction and permitting issues.
During the quarter, 74 new Dollar Tree stores were opened.
About 30 stores were expanded and 138 Deal$ Stores was acquired. The company was on-track to achieve its growth target of 12% to 14% square footage growth for the year.
Gross margins were 33.4% compared to 33.9% in the prior year period.
The decrease in rate reflected a slight shift in the merchandise mix to lower margin consumables and the impact of higher transportation costs. The decline in merchandise margins was partially offset by the leverage of buying, distribution and occupancy costs attributable to the comparable store sales increase.
The addition of Deal$ Stores which demonstrate a lower margin due to the current product mix also negatively impacted margin rate. This was partially offset by lower markdown and positive leverage on buying, distribution and occupancy cost associated with a 4% increase in comparable store sales.
Selling, general and administrative expenses as a percentage of sales were 27.2% compared to 27.5% in the first quarter of 2005.
The improvement in rate reflected the leverage from the positive same store sales, savings in benefit costs and workers compensation, as well as the company''s continued focus on expense control. Current year equity grants including the impact of FAS 123(R) accounted for about $475,000 of increased compensation expense over last year.
Operating margin was 6.2% versus 6.4% for the same period a year ago. 
