2015 Annual Report
TO OUR SHAREHOLDERS: Bob Sasser Chief Executive Officer Dollar Tree, Inc. is a Fortune 500 company
and the world’s leading operator of the $1 price stores which has been our honor to withheld.
Overall, Dollar Tree has more than 13,000 stores across the 48 states and five Canadian provinces,
supported by broad logistics network and with more than 167,000 associates all throughout
the nation.
2015 was a year of great achievement and
at Dollar Tree. We continue to be a large thriving company and our Dollar Tree segment is the top leading operator of discount variety stores offering merchandise at the fixed price point of $1.00. Dollar Tree serves an extremely loyal and growing customer base and our business model is resilient, as demonstrated through a variety of economic scenarios over time. The Future of Dollar Tree has never been brighter!
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2015 FINANCIAL HIGHLIGHTS
Net Sales
Gross Profit
Operating Income
Net Income
$4,656.7
$15,498.4
$1,049.7
$282.4
Total Assets $15,901.2
STOCK PRICE First Quarter Second Quarter Third Quarter Fourth Quarter
HIGH LOW $84.22 $70.28 $82.68 $74.51 $81.17 $60.31 $81.97 $61.33
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2015 Was A
TRANSFORMATIONAL
YEAR FOR DOLLAR TREE Operating income improved to a record $1.05 billion.
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We opened 566 new stores.
Increased selling square footage by 133%.
Net sales increasing 80.2% to $15.5 billion.
Employing more than 167,000 associates across 48 states and five Canadian provinces. 5
2015 ANNUAL REPORT PART I Item 1 Business // 10 Item 1A Risk Factors // 24 Item 2 Properties // 31 Item 3 Legal Proceedings // 33
PART III
Item 10 Directors, Executive Officers, and Corporate Governance // 87
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Item 11 Executive Compensation // 87
TABLE OF CONTENTS PART II
Item 5 Equity & Stockholder Matters // 35 Item 6 Selected Financial Data // 36 Item 7 Analysis of Financial Condition // 38 Item 7A About Market Risk // 61 Item 8 Financial Statements and Supplementary Data // 62 Item 9 Controls and Procedures // 84 Item 12 Security and Beneficial Owner's Management // 88 Item 13 Relationships, Transactions, and Director Independence // 88
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PART I
Pr m oc 3 L ee eg di al ng s
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PART I
ITEM 1 // BUSINESS Overview
Dollar Tree
We are a leading operator of discount
The Dollar Tree segment includes 5,954
variety stores. Our beliefs include the
stores operating under the names
convenience and value we offer and how
Dollar Tree, Dollar Tree Canada, Deals
they are key factors in growing our base
and Dollar Tree Deals brands, with ten
of loyal customers. We operated 13,851
distribution centers in the United States
stores as of January 30, 2016.
and two in Canada and a Store Support Center in Chesapeake, Virginia.
This transformational transaction created the largest discount retailer (by stores)
Our stores range from predominantly
at Dollar Tree. Also, we announced our
the Dollar Tree stores in the United
stores to one of our two primary banners
and in the Dollar Tree Canada stores,
in North America. Everything is $1.00
plans to convert all Dollar Tree Deals on October 13, 2015.
8,000 – 10,000 selling square feet. In
States, we sell all items for $1.00 or less
we sell all items for $1.25 (CAD) or less.
We buy approximately 57% to 59% of
merchandise domestically and import the remaining 41% to 43% . Dollar Tree believes in the mix of
imported and domestic merchandise affords our buyers flexibility that allows them to consistently exceed the
customerĘźs expectations.
ITEM 1
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All of our Dollar Tree stores in the United States accept
cash, checks, debit cards and credit cards. Last year,
we added freezers and coolers to certain stores and
increased the amount of consumable merchandise carried by those stores. We believe this initiative helps drive
additional transactions and allows us to appeal to a broader demographic mix.
As of January 30, 2016, we have freezers and coolers in 4,285
of our Dollar Tree stores. We plan to install them in 400
additional stores by the end of fiscal 2016. Along with the rollout of freezers and coolers, we have increased the
number of stores accepting Electronic Benefits Transfer (EBT) cards and food stamps under the Supplemental Nutrition
Assistance Program (“SNAP ”) to 5,600 stores as of January
30, 2016.
At any point in time, we carry approximately 7,100 items in
our stores and as of the end of 2015 approximately 35% of our
items are automatically replenished. The remaining items are pushed to the stores and a portion can be reordered by our store managers on a weekly basis. Automatic replenishment helps our store managersʼability to order product. Each
store manager is able to satisfy the demands of his or her
particular customer base.
Dollar Tree maintains a balanced and wide selection of
products within traditional variety store categories. We
supplement these basic, everyday items with seasonal,
closeout and promotional merchandise. Our store attempts to keep certain basic consumable merchandise in our stores
continuously to establish our stores as a destination and
increase the traffic. Closeout and promotional merchandise is purchased opportunistically and represents less than 10%
of our purchases.
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PART I
Our Merchandise Mix in our Dollar Tree Stores Consists of: Variety merchandise Candy and food, health and beauty care, and everyday
consumables such as household paper and chemicals, and in select stores, frozen and refrigerated foods.
Consumable merchandise Toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items.
Seasonal goods Valentine's Day, Easter, Halloween and Christmas merchandise.
Business Strategy We will continue to execute our proven strategies that have generated a
history of success and consistent growth for the Company. Key elements of our strategy include: •
Continuously aiming to Wow the customer. with a compelling, fun
fresh merchandise assortment comprising a variety of the things you want and things you need, all at incredible values in a clean and friendly store.
•
Maintaining a flexible sourcing merchandise model that allows a
variety of products to be sold as long as merchandise margin hurdles are met.
•
Pursuing a more, better, faster approach to the rollout of all of the
•
Maintaining customer relevance by ensuring that we reinvent
•
new Dollar Tree stores to broaden our geographic footprint.
ourselves constantly through new merchandise categories.
Leveraging the complementary merchandise expertise of each
banner including Dollar Tree’s sourcing and product development expertise
•
Maintaining a prudent approach with our use of capital for the benefit of our shareholders.
ITEM 1
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Growth Strategy: Store Openings and Square Footage Growth The primary factors contributing to our net sales growth have been new store openings, an active store expansion, and remodel program. In
the last five years, net sales increased at a compound annual growth
rate of 23.6%. We expect that the majority of our future sales growth will
come primarily from new store openings in our Dollar Tree banners, from our store expansion, and relocation program. At January 28, 2012, we operated 4,351 stores in the United States and
Canada. At January 30, 2016, we operated 13,626 stores in 48 states and the District of Columbia, as well as 225 stores in Canada. Our selling
square footage increased from approximately 37.6 million square feet in January 2012 to 108.4 million square feet in January 2016. Our store
growth has resulted from opening new stores.
The following table shows the average selling square footage of our stores and the selling square footage per new store opened over the last five years. Our growth and productivity statistics are reported based on selling square footage because our management believes the use of selling square footage yields a more accurate measure of the storeĘźs productivity.
Year
Number of Stores
Average Selling Square Footage Per Store
Average Selling Square Footage Per New Store Opened
2012
4,671
8,660
8,060
2013
4,992
8,660
8,020
2014
5,367
8,660
8,060
2015
13,851
7,820
7,730
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PART I
Our selling square footage increased to 108.4 million square feet in January 2016.
ITEM 1
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Distribution Centers
We believe our distribution center network is currently capable of supporting approximately $24.1 billion
in annual sales in the United States. Each of our
distribution centers contains advanced materials
handling technologies, including radio frequency inventory tracking equipment and specialized
information systems. Our distribution centers in the United States also contains automated conveyor and sorting systems. The following table includes information about the distribution centers that we operate in the United States.
665,000 SQ FT RIDGEFIELD, WASHINGTON
525,000 SQ FT
400,000 SQ FT CHESAPEAKE, VIRGINIA
STOCKTON, CALIFORNIA
BRIAR CREEK, PENNSYLVANIA
SAN BERNARDINO, CALIFORNIA
1, 003,000 SQ FT
802,000 SQ FT
1, 004,000 SQ FT
WINDSOR, CONNECTICUT
1, 001,000 SQ FT
MARIETTA, OKLAHOMA OLIVE BRANCH, MISSISSIPPI
JOLIET, ILLINOIS
425,000 SQ FT
1, 470,000 SQ FT 1, 014,000 SQ FT SAVANNAH, GEORGIA
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PART I
ITEM 3 // LEGAL PROCEEDINGS From time to time, we are defendants in ordinary, routine litigation or
proceedings incidental to our business, including allegations regarding:
•
Employment-related matters;
•
Personal injury/wrongful death claims;
• •
• •
Infringement of intellectual property rights; Product safety matters, which may include product recalls in
cooperation with the Consumer Products Safety Commission or other jurisdictions;
Real estate matters related to store leases; and Environmental and safety issues.
In addition, we are currently defendants in national and state employment related class and collective actions, litigationconcerning injury from
products and a governmental investigation by the Consumer Products
Safety Commission. We will vigorously defend ourselves in these matters. We do not believe that any of these matters will, individually or in the
aggregate, have a material effect on our business or financial condition. Our company cannot give assurance, however, that one or more of these
lawsuits will not have a material effect on our results of operations for the period in which they are resolved.
ITEM 3
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PART II
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Item 5 // Equity & Stockholder Matters
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Our common stock is traded on The NASDAQ Global Select Market®. Our common stock has been traded on NASDAQ under the symbol DLTR since our initial public offering in 1995. The following table gives the high and low sales prices of our common stock as reported by NASDAQ for the periods:
$59.84 $59.84 $59.84 $56.39 $49.59 $56.39 $49.59 $59.84
FISCAL YEAR ENDED JANUARY 31, 2015
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$82.68 $82.68 $74.51 $84.22 $70.28 $84.22 $70.28 $74.51
FISCAL YEAR ENDED JANUARY 31, 2015 TER
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$81.97 $61.33 $81.97 $60.31 $81.17 $60.31 $81.17 $61.33
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$72.59 $60.21 $72.59 $53.17 $61.00 $53.17 $61.00 $60.21
TH
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ITEM 5
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ITEM 7 // ANALYSIS OF FINANCIAL CONDITION In Management’s Discussion and Analysis, we explain the general financial condition and the results of operations for our company, which includes:
What factors affect our business.
What our net sales, earnings, gross margins and costs were in 2015, 2014 and 2013.
Why those net sales, earnings, gross margins and costs were different from the year before.
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PART II
How all of this affects our overall financial condition.
What our expenditures for capital projects were in 2015 and 2014 and what we expect them to be in 2016.
Where funds will come from to pay for future expenditures.
As of 2015, we had approximately 8,030 selling square
feet (or about 10,000 gross square feet) for the Dollar Tree
segment and 7,000 selling square feet.
At January 30, 2016, we operated stores in 48 states and the District of Columbia, as well as stores in five Canadian
provinces. A breakdown of store counts
and square footage by segment for the years ended
January 30, 2016 and January 31, 2015:
Begi nni ng 5, 36 7
ing d n 4 ,95 E
1.5
nered ban Re
ing d n 2 0.
(IN MILLIONS)
3.2
SELLING SQ. FT.
New Stores
Rel oca t 51 .
5
nered ban Re 205
3
Begi nn in 46.5
g
s ion
400
STORE COUNT
New Stores
Relo cat i 64
s on
ITEM 7
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Key Events and Recent Developments Several key events have had or are expected to have a significant effect on our operations. You should keep in mind that:
In January 2015, we completed a In August 2013, we completed a
401,000 square foot expansion of
our distribution center in Marietta,
Oklahoma. The Marietta distribution
270,000
square foo t expansion
of our distribution center in Joliet, Illinois. The Joliet distribution center
is now a 1,470,000 square foot, fully automated facility.
center is now a 1,004,000 square foot, fully automated facility.
Since September 17, 2013, we entered into agreements with JP Morgan Chase Bank
to repurchase $1.0 billion of our common
stock under a variable maturity accelerated share repurchase program, 50% of which was
collared and 50% were uncollared.
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On June 11, 2015, we amended the terms of the New Senior Secured Credit Facilities to refinance the existing $3.95 billion Term Loan B tranche.
On July 6, 2015, we repaid all
amounts outstanding under our Senior Notes issued in 2013.
On March 9, 2015, we entered into a
credit agreement and term loan facilities and received $3.95 billion under the Term Loan B.
ITEM 7
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Stock Performance Graph The following graph sets forth the yearly percentage change in the cumulative total shareholder return on our common stock during the five fiscal years ended January 30, 2016, compared with the cumulative total returns of the S&P 500 Index and the S&P Retailing Index. The comparison assumes that $100 was invested in our common stock on January 29, 2011, and, in each of the foregoing indices on that same day and that dividends were reinvested.
n o s o i r f 5-Year a p m o C 1/28/12 1 1 / 23 / 1 0
0 $1
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$160
2/2/13
$155
On March 23, 2016, the last reported sale price for our common stock, as quoted by NASDAQ , was $78.96 per share. As of March 23, 2016, we had
approximately 2,841 shareholders of record. We did not repurchase any shares of common stock on the open market in 2015. At January 30, 2016, we had
n r u t e R l a t o T 6 e 1 / 0 v i 1/3 t a 5 l 1 5 u 3 /1 $ m 1 3 Cu 1/ 25 $1.0 billion remaining under Board
repurchase authorization.
4 1 / 2/1
0 7 $1
$2
ITEM 7
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Merchandise Inventories Cost is assigned to store inventories using the retail inventory method
on a weighted-average basis. Total warehousing and distribution costs
capitalized into inventory amounted to $114.0 million and $44.3 million at January 30, 2016 and January 31, 2015, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful lives of the respective assets as follows: Buildings 39 to 40 years Furniture, fixtures and equipment 3 to 15 years.
Capitalized Interest
The Company capitalizes interest on borrowed funds during the
construction of certain property and equipment. The Company will capitalized $1.3 million of interest costs in the year ended
January 30, 2016. No interest costs were capitalized in the years ended January 31, 2015 and February 1, 2014.
Fair Value Measurements
As a basis for considering such assumptions, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level 1 - Quoted prices in active markets for identical assets. Level 2 - Quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments in
markets that are not active; and
market data which require the reporting entity to develop
its own assumptions.
Level 3 - Unobservable inputs in which there is little or no
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PART II
DOLLAR TREE, INC. INCOME TAXES (in million) Income From Continuing Operations
Year Ended January 30, January 31, 2016 2015
Shareholders' Equity, Tax Benefit of Compenations Federal -Current
State - Current
Foreign Current
TOTAL CURRENT
$165.8 $282.4
$355 599.2
14.6
47.5 0.4
126.9
325.1
0.5
Federal - Deferred
142.0 7.4
373.1 9.7
Foreign - Deferred
3.3 13.1
3.2 5.2
Statutory Tax Rate
35%
State - Deferred
TOTAL DEFERRED Federal Income Tax Benefit Work Opportunity Tax Credit
Other, Net
Effective Tax Rate Total Deferred Tax Liabilities
Net Deferred Tax Asset (Liability) Total Deferred Tax Assets
23.8
18.1 35%
3.0
3.8
1.7 37% 1,789.9 1,586.6 251.7
3.3 1.0
0.1 37.2% 75.8 58.9 148.5
The Company’s cash and cash equivalents are valued at cost, which approximates fair value, due to the short-term maturities of these instruments. The fair values of the diesel fuel swaps were estimated using discounted cash flow calculations based upon forward interest-rate yield and diesel cost curves. The curves were obtained from independent pricing services reflecting broker market quote.
Other Assets, Net
Restricted investments were $82.0 million and $78.9 million at
January 30, 2016 and January 31, 2015, respectively and were purchased to collateralize long-term insurance obligations. These investments are classified as available-for-sale and are recorded at fair value, which approximates cost. Deferred compensation plan assets were $21.1 million and $5.5 million at January 30, 2016 and
January 31, 2015 and are recorded at fair value.
ITEM 8
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Employee Stock Purchase Plan
Under the Dollar Tree, Inc. Employee Stock Purchase Plan (ESPP), the
Company is authorized to issue up to 8,707,692 shares of Common Stock to eligible employees. Under the terms of the ESPP, employees
can choose to have up to 10% of their annual base earnings withheld to purchase the Company's common stock. The purchase price of the
stock is 85% of the lower of the price at the beginning or the end of
the quarterly offering period. Under the ESPP, the Company has sold
4,871,632 shares as of January 30, 2016 .
The weighted average per share fair value of purchase rights granted in 2015, 2014 and 2013 was $11.65, $8.17 and $8.26, respectively. Total expense recognized for these purchase rights was $1.0 million, $0.8
million and $1.0 million in 2015, 2014 and 2013, respectively.
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PART II
NOTE 11: SEGMENT REPORTING The Company operates a chain of more than 13,800 discount retail stores in 48 states and five Canadian provinces. The Company's
operations are conducted in the business segment: Dollar Tree. The Company defines its segments as those operations whose results its chief operating decision maker (CODM) regularly reviews to analyze
performance and allocate resources. The Dollar Tree segment is the
leading operator of discount variety stores offering merchandise at the fixed price of $1.00. The Dollar Tree segment includes the Company’s
operations under the “Dollar Tree,” “Dollar Tree Canada,” “Deals” and
“Dollar Tree Deals” brands, ten distribution centers in the United States, two distribution centers in Canada and a Store Support Center in Chesapeake, Virginia.
The Company measures the results of its segments using, among other measures, each segment's net sales, gross profit and operating income (loss). The Company may revise the measurement of each segment's operating income (loss), including the allocation of distribution center and Store Support Center costs, as determined by the information regularly reviewed by the CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation.
ITEM 8
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Ite Offi m Go c 10 ve er Dir Ite rn s, ec m an an to 11 ce d C rs Ex or , E e po xe cu Ite r a cu t iv Ow m te t iv eC 12 n e er S Ite om e 's c an m pe M ur 1 d 3 ns a i Di R t n at ag y a re el io a n e ct t m d n or ion en Be t ne In sh de ip fi ci pe s, al nd Tr e n an ce sac tio ns ,
PART III
Item 10 // DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEES Information set forth in the Proxy Statement under the caption
“Compensation of Executive Officers,” with respect to executive compensation, is incorporated herein by reference.
Item 11 // EXECUTIVE COMPENSATION The information concerning our Directors and Executive Officers required by this Item is incorporated by reference in Dollar Tree, Inc.'s Proxy
Statement relating to our Annual Meeting of Shareholders to be held
on June 16, 2016 (Proxy Statement).
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Item 12 // SECURITY AND BENEFICIAL OWNER'S MANAGEMENT The information concerning our securities authorized for issuance under equity compensation plans required by this Item is incorporated by reference to the Proxy Statement under the caption “Equity
Compensation Plan Information.” Information set forth in the Proxy Statement under the caption “Ownership of Common Stock,” with respect to security ownership of certain beneficial owners and management.
Item 13 // RELATIONSHIPS, TRANSACTIONS, AND DIRECTOR'S INDEPENDENCE Information set forth in the Proxy Statement under the caption "Certain Relationships and Related Transactions," is incorporated herein by reference. The information concerning the independence of our
directors required by this Item is incorporated by reference to the Proxy Statement under the caption “Corporate Governance and
Director Independence.”
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PART III
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date of March 28, 2016.
Macon F. Brock, Jr.
Chairman; Director
Bob Sasser
Director, Chief Executive Officer (principal executive officer)
Thomas A. Saunders III Lead Independent Director
J. Douglas Perry Chairman Emeritus; Director
Conrad M. Hall Director
Howard R. Levine Director
Lemuel E. Lewis Director
Kevin S. Wampler Chief Financial Officer
(principal financial and accounting officer)
Arnold S. Barron Director Thomas E. Whiddon Mary Anne Citrino
Director
Director
Dr. Carl P. Zeithaml H. Ray Compton
Director
Director
ITEM 13
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Annual Meeting
Shareholders are cordially invited to attend our Annual Meeting of Shareholders, which will be held at 8:00 a.m. on Thursday,
June 16, 2016, at:
The Founders Inn 5641 Indian River Road, Virginia Beach, VA 23464
Fiscal 2016 Earnings Release Calendar* First quarter, May 26
Second quarter, August 25 Third quarter, November 22 Fourth quarter, March 1, 2017 *Dates are subject to change.
Investors’ Inquiries
Requests for interim and annual reports, Forms 10-K, ormore information should be directed to: Randy Guiler VP, Investor Relations Dollar Tree, Inc. 500 Volvo Parkway Chesapeake, VA 23320 (757) 321-5284 Or from the Investor Relations section of our Company web site:
DollarTreeinfo.com.
Thank
You