Dollar Tree (NASDAQ:DLTR), a leading discount retailer in the U.S. (4,242 stores at the end of Q2) reported second quarter earnings and held a conference call with investors on Thursday morning. The company and its two main competitors — Family Dollar (FDO) and Dollar General (NYSE:DG) — have proven to be resilient during the economic downturn, with all three up more than 100% (DLTR the most at 234%) in the past five years, compared to slightly down on both the S&P 500 and the DJIA. The companies have filled a void for constrained shoppers who have largely abandoned the (comparatively) large package sizes of places such as Walmart (WMT), and found a replacement offering in low-priced goods close to home. Here are some of the highlights from the second quarter and the call:
Consolidated net sales for the second quarter were $1.54 billion, an 11.9% increase compared to $1.38 billion in the second quarter of 2010. Comparable store sales increased an impressive 4.7% (3.6% traffic, 1.1% ticket), on top of a strong comp (6.7%) in the second quarter of last year. Year-to-date, consolidated net sales are up 13.1% to $3.09 billion; same store sales are up nearly 6%, on top of 6.6% comparable store sales growth in the first half of 2010.
During the second quarter, the company completed a small share repurchase of 131,000 shares at a cost of $8.2 million (average cost = $82 a share). Considering the fact that they don’t pay a dividend either, it appears that management has chosen to pay back shareholders by reinvesting in the business; here is what CEO Bob Sasser had to say about their growth plans:
“We’re expanding our business by opening more stores, better stores, and developing new formats, new markets and new channels. During the second quarter this year, we opened 76 new stores and relocated and expanded another 23 stores. Through the first half we added 159 new stores and expanded or relocated another 64 stores.
Selling square footage increased 8.9% relative to the same time last year, and we ended the first half with 4,242 stores. Our plan for the full-year includes 275 new stores and 90 relocations expansions for a total of 365 projects…”
This is in addition to expansion outside of domestic Dollar Tree stores, including the Deal$ concept and growth in Canada:
“We currently operate in 177 Deal$ stores. In the first half 2011, we opened 18 new Deal$ stores and expanded and relocated six Deal$ stores. For the full-year, we now expect to open 27 new Deal$ stores and expand or relocate seven Deal$ stores for a total of 34 Deal$ projects.
Our expansion into Canada is proceeding on schedule. You may remember during the fourth quarter of 2010 that we acquired 86 Dollar Giant stores in Canada. This year, we intend to expand the store count by about 15 to 20% while establishing an infrastructure of store teams, systems and logistics to support more aggressive growth in 2012 and beyond. In the first half of this year, we’ve opened four new stores and now operate 90 stores in Canada.”
Earnings per diluted share for the second quarter were $0.77, an increase of 26.2% compared to $0.61 in the same period last year, and marking the 10th consecutive quarter of 20% EPS growth or higher. These strong profit figures were partly driven by a 70 basis points increase in operating margin (10.0%), due to a mix of increased gross margin (10 basis points) and a reduction in selling, general, and administrative expenses (60 basis points). First half 2011 earnings per share were $1.59, an increase of more than 30% compared with earnings per share of $1.10 in the first half 2010 (2010 numbers exclude a $0.13 retail inventory accounting change).
For the full year, management estimates sales to be in the range of $6.53 billion to $6.62 billion. In regards to earnings, diluted EPS is expected to be in the range of $3.82 to $3.95; compared to adjusted EPS of $3.23 in FY 2010, this suggests a year over year increase in EPS of 18-22%.
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As it relates to portfolio construction, my goal is to make a small number of meaningful decisions. In the words of Charlie Munger, my preferred approach is "Patience followed by pretty aggressive conduct." I run a concentrated portfolio, with a handful of equities accounting for the majority of my portfolio (currently two). In the eyes of a businessman, I believe this is adequate diversification.