Virginia | 26-2018846 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
500 Volvo Parkway, Chesapeake, Virginia | 23320 | |
(Address of principal executive offices) | (Zip Code) |
Yes ý | No ¨ |
Yes ý | No ¨ |
Large accelerated filer ý | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company ¨ |
Emerging growth company ¨ |
Yes ¨ | No ý |
Page | ||
PART I - FINANCIAL INFORMATION | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II - OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions, except per share data) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net sales | $ | 5,538.8 | $ | 5,316.6 | $ | 16,618.1 | $ | 15,884.9 | ||||||||
Cost of sales | 3,866.9 | 3,650.6 | 11,582.7 | 10,964.0 | ||||||||||||
Gross profit | 1,671.9 | 1,666.0 | 5,035.4 | 4,920.9 | ||||||||||||
Selling, general and administrative expenses, excluding Receivable impairment | 1,284.1 | 1,240.8 | 3,827.5 | 3,633.9 | ||||||||||||
Receivable impairment | — | — | — | 53.5 | ||||||||||||
Selling, general and administrative expenses | 1,284.1 | 1,240.8 | 3,827.5 | 3,687.4 | ||||||||||||
Operating income | 387.8 | 425.2 | 1,207.9 | 1,233.5 | ||||||||||||
Interest expense, net | 47.6 | 69.7 | 323.7 | 220.2 | ||||||||||||
Other (income) expense, net | 0.2 | 0.4 | (0.9 | ) | 0.8 | |||||||||||
Income before income taxes | 340.0 | 355.1 | 885.1 | 1,012.5 | ||||||||||||
Income tax expense | 58.2 | 115.2 | 168.9 | 338.3 | ||||||||||||
Net income | $ | 281.8 | $ | 239.9 | $ | 716.2 | $ | 674.2 | ||||||||
Basic net income per share | $ | 1.18 | $ | 1.01 | $ | 3.01 | $ | 2.85 | ||||||||
Diluted net income per share | $ | 1.18 | $ | 1.01 | $ | 3.00 | $ | 2.84 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income | $ | 281.8 | $ | 239.9 | $ | 716.2 | $ | 674.2 | ||||||||
Foreign currency translation adjustments | (0.7 | ) | (2.7 | ) | (5.9 | ) | 2.3 | |||||||||
Total comprehensive income | $ | 281.1 | $ | 237.2 | $ | 710.3 | $ | 676.5 |
(in millions) | November 3, 2018 | February 3, 2018 | October 28, 2017 | |||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 708.3 | $ | 1,097.8 | $ | 400.1 | ||||||
Merchandise inventories, net | 3,715.6 | 3,169.3 | 3,397.8 | |||||||||
Other current assets | 325.6 | 309.2 | 174.7 | |||||||||
Total current assets | 4,749.5 | 4,576.3 | 3,972.6 | |||||||||
Property, plant and equipment, net of accumulated depreciation of $3,571.8, $3,192.1 and $3,060.1, respectively | 3,406.2 | 3,200.7 | 3,178.9 | |||||||||
Assets available for sale | 5.9 | 8.0 | 8.6 | |||||||||
Goodwill | 5,023.6 | 5,025.2 | 5,024.3 | |||||||||
Favorable lease rights, net of accumulated amortization of $290.6, $230.9 and $224.7, respectively | 314.6 | 375.3 | 398.0 | |||||||||
Tradename intangible asset | 3,100.0 | 3,100.0 | 3,100.0 | |||||||||
Other intangible assets, net | 4.6 | 4.8 | 4.9 | |||||||||
Other assets | 44.9 | 42.5 | 42.9 | |||||||||
Total assets | $ | 16,649.3 | $ | 16,332.8 | $ | 15,730.2 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Current portion of long-term debt | $ | — | $ | 915.9 | $ | 165.9 | ||||||
Accounts payable | 1,365.1 | 1,174.8 | 1,181.3 | |||||||||
Income taxes payable | 0.7 | 31.5 | — | |||||||||
Other current liabilities | 769.9 | 736.9 | 692.7 | |||||||||
Total current liabilities | 2,135.7 | 2,859.1 | 2,039.9 | |||||||||
Long-term debt, net, excluding current portion | 5,043.8 | 4,762.1 | 5,557.0 | |||||||||
Unfavorable lease rights, net of accumulated amortization of $77.0, $61.1 and $57.0, respectively | 84.0 | 100.0 | 105.7 | |||||||||
Deferred tax liabilities, net | 999.2 | 985.2 | 1,472.4 | |||||||||
Income taxes payable, long-term | 33.0 | 43.8 | 45.1 | |||||||||
Other liabilities | 410.5 | 400.3 | 393.6 | |||||||||
Total liabilities | 8,706.2 | 9,150.5 | 9,613.7 | |||||||||
Commitments and contingencies | ||||||||||||
Shareholders’ equity | 7,943.1 | 7,182.3 | 6,116.5 | |||||||||
Total liabilities and shareholders’ equity | $ | 16,649.3 | $ | 16,332.8 | $ | 15,730.2 | ||||||
Common shares outstanding | 238.0 | 237.3 | 237.1 |
39 Weeks Ended | ||||||||
November 3, | October 28, | |||||||
(in millions) | 2018 | 2017 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 716.2 | $ | 674.2 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 454.4 | 454.6 | ||||||
Provision for deferred taxes | 13.8 | 15.8 | ||||||
Amortization of debt discount and debt-issuance costs | 53.7 | 12.0 | ||||||
Receivable impairment | — | 53.5 | ||||||
Other non-cash adjustments to net income | 63.3 | 61.6 | ||||||
Loss on debt extinguishment | 114.7 | — | ||||||
Changes in operating assets and liabilities | (365.2 | ) | (679.1 | ) | ||||
Net cash provided by operating activities | 1,050.9 | 592.6 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (622.7 | ) | (449.4 | ) | ||||
Proceeds from sale of restricted and unrestricted investments | — | 4.0 | ||||||
Proceeds from (payments for) fixed asset disposition | 3.3 | (0.1 | ) | |||||
Net cash used in investing activities | (619.4 | ) | (445.5 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt, net of discount | 4,775.8 | — | ||||||
Principal payments for long-term debt | (5,432.7 | ) | (610.8 | ) | ||||
Debt-issuance and debt extinguishment costs | (155.3 | ) | — | |||||
Proceeds from revolving credit facility | 50.0 | — | ||||||
Repayments of revolving credit facility | (50.0 | ) | — | |||||
Proceeds from stock issued pursuant to stock-based compensation plans | 14.2 | 24.4 | ||||||
Cash paid for taxes on exercises/vesting of stock-based compensation | (22.6 | ) | (27.2 | ) | ||||
Net cash used in financing activities | (820.6 | ) | (613.6 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (0.4 | ) | 0.2 | |||||
Net decrease in cash and cash equivalents | (389.5 | ) | (466.3 | ) | ||||
Cash and cash equivalents at beginning of period | 1,097.8 | 866.4 | ||||||
Cash and cash equivalents at end of period | $ | 708.3 | $ | 400.1 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest, net of amounts capitalized | $ | 289.3 | $ | 261.3 | ||||
Income taxes | $ | 197.9 | $ | 454.6 | ||||
Non-cash transactions: | ||||||||
Accrued capital expenditures | $ | 51.2 | $ | 53.5 |
As of November 3, 2018 | As of February 3, 2018 | As of October 28, 2017 | ||||||||||||||||||||||
(in millions) | Principal | Unamortized Debt Discount, Premium and Issuance Costs | Principal | Unamortized Debt Discount, Premium and Issuance Costs | Principal | Unamortized Debt Discount, Premium and Issuance Costs | ||||||||||||||||||
Forgivable Promissory Note | $ | — | $ | — | $ | — | $ | — | $ | 7.0 | $ | — | ||||||||||||
5.25% Acquisition Notes, due 2020 | — | — | 750.0 | 6.1 | 750.0 | 6.8 | ||||||||||||||||||
5.75% Acquisition Notes, due 2023 | — | — | 2,500.0 | 30.8 | 2,500.0 | 32.1 | ||||||||||||||||||
Term Loan A-1 | — | — | 1,532.7 | 3.4 | 1,574.2 | 3.7 | ||||||||||||||||||
Term Loan B-2 | — | — | 650.0 | 8.6 | 650.0 | 9.0 | ||||||||||||||||||
$1.25 billion Tranche A Revolving Credit Facility | — | — | — | 12.6 | — | 13.9 | ||||||||||||||||||
5.00% Senior Notes, due 2021 | 300.0 | (5.2 | ) | 300.0 | (6.8 | ) | 300.0 | (7.2 | ) | |||||||||||||||
$1.25 billion Revolving Credit Facility, interest payable at LIBOR, reset periodically, plus 1.125%, which was 3.44% at November 3, 2018 | — | 10.8 | — | — | — | — | ||||||||||||||||||
Term Loan Facility, due 2020, interest payable at LIBOR, reset periodically, plus 0.95%, which was 3.27% at November 3, 2018 | 782.0 | 1.8 | — | — | — | — | ||||||||||||||||||
Senior Floating Rate Notes, due 2020, interest payable at LIBOR, reset quarterly, plus 0.70%, which was 3.29% at November 3, 2018 | 750.0 | 3.8 | — | — | — | — | ||||||||||||||||||
3.70% Senior Notes, due 2023 | 1,000.0 | 8.0 | — | — | — | — | ||||||||||||||||||
4.00% Senior Notes, due 2025 | 1,000.0 | 7.5 | — | — | — | — | ||||||||||||||||||
4.20% Senior Notes, due 2028 | 1,250.0 | 11.5 | — | — | — | — | ||||||||||||||||||
Total | $ | 5,082.0 | $ | 38.2 | $ | 5,732.7 | $ | 54.7 | $ | 5,781.2 | $ | 58.3 |
(in millions) | November 3, 2018 | February 3, 2018 | October 28, 2017 | ||||||
Level 1 | |||||||||
Deferred compensation plan assets | 21.8 | 20.7 | 19.8 |
November 3, 2018 | February 3, 2018 | October 28, 2017 | ||||||||||||||||||||||
(in millions) | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||
Level 1 | ||||||||||||||||||||||||
Senior Notes and Acquisition Notes | $ | 4,158.7 | $ | 4,274.4 | $ | 3,684.6 | $ | 3,519.9 | $ | 3,713.4 | $ | 3,518.3 | ||||||||||||
Level 2 | ||||||||||||||||||||||||
Term loans | 774.2 | 780.2 | 2,187.6 | 2,170.7 | 2,230.7 | 2,211.5 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions, except per share data) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Basic net income per share: | ||||||||||||||||
Net income | $ | 281.8 | $ | 239.9 | $ | 716.2 | $ | 674.2 | ||||||||
Weighted average number of shares outstanding | 237.9 | 236.9 | 237.8 | 236.7 | ||||||||||||
Basic net income per share | $ | 1.18 | $ | 1.01 | $ | 3.01 | $ | 2.85 | ||||||||
Diluted net income per share: | ||||||||||||||||
Net income | $ | 281.8 | $ | 239.9 | $ | 716.2 | $ | 674.2 | ||||||||
Weighted average number of shares outstanding | 237.9 | 236.9 | 237.8 | 236.7 | ||||||||||||
Dilutive effect of stock options and restricted stock (as determined by applying the treasury stock method) | 0.8 | 0.9 | 0.8 | 0.8 | ||||||||||||
Weighted average number of shares and dilutive potential shares outstanding | 238.7 | 237.8 | 238.6 | 237.5 | ||||||||||||
Diluted net income per share | $ | 1.18 | $ | 1.01 | $ | 3.00 | $ | 2.84 |
Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Nonvested at February 3, 2018 | 1,525,252 | $ | 79.37 | ||||
Granted | 788,162 | 94.82 | |||||
Vested | (660,485 | ) | 79.84 | ||||
Forfeited | (88,124 | ) | 84.66 | ||||
Nonvested at November 3, 2018 | 1,564,805 | $ | 86.65 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net sales: | ||||||||||||||||
Dollar Tree | $ | 2,853.8 | $ | 2,685.0 | $ | 8,407.0 | $ | 7,843.6 | ||||||||
Family Dollar | 2,685.0 | 2,631.6 | 8,211.1 | 8,041.3 | ||||||||||||
Total net sales | $ | 5,538.8 | $ | 5,316.6 | $ | 16,618.1 | $ | 15,884.9 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Gross profit: | ||||||||||||||||
Dollar Tree | $ | 993.7 | $ | 942.6 | $ | 2,909.8 | $ | 2,735.0 | ||||||||
Family Dollar | 678.2 | 723.4 | 2,125.6 | 2,185.9 | ||||||||||||
Total gross profit | $ | 1,671.9 | $ | 1,666.0 | $ | 5,035.4 | $ | 4,920.9 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Depreciation and amortization expense: | ||||||||||||||||
Dollar Tree | $ | 68.2 | $ | 62.5 | $ | 197.9 | $ | 186.8 | ||||||||
Family Dollar | 82.3 | 86.9 | 256.7 | 268.0 | ||||||||||||
Total depreciation and amortization expense | $ | 150.5 | $ | 149.4 | $ | 454.6 | $ | 454.8 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Operating income: | ||||||||||||||||
Dollar Tree | $ | 331.9 | $ | 317.3 | $ | 959.8 | $ | 921.9 | ||||||||
Family Dollar | 55.9 | 107.9 | 248.1 | 311.6 | ||||||||||||
Total operating income | $ | 387.8 | $ | 425.2 | $ | 1,207.9 | $ | 1,233.5 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
November 3, | October 28, | November 3, | October 28, | |||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Capital expenditures: | ||||||||||||||||
Dollar Tree | $ | 145.1 | $ | 114.3 | $ | 412.2 | $ | 267.7 | ||||||||
Family Dollar | 83.3 | 63.4 | 210.5 | 181.7 | ||||||||||||
Total capital expenditures | $ | 228.4 | $ | 177.7 | $ | 622.7 | $ | 449.4 |
As of | ||||||||||||
November 3, | February 3, | October 28, | ||||||||||
(in millions) | 2018 | 2018 | 2017 | |||||||||
Total assets: | ||||||||||||
Dollar Tree | $ | 4,613.0 | $ | 4,113.4 | $ | 3,665.8 | ||||||
Family Dollar | 12,036.3 | 12,219.4 | 12,064.4 | |||||||||
Total assets | $ | 16,649.3 | $ | 16,332.8 | $ | 15,730.2 |
As of | ||||||||||||
November 3, | February 3, | October 28, | ||||||||||
(in millions) | 2018 | 2018 | 2017 | |||||||||
Total goodwill: | ||||||||||||
Dollar Tree | $ | 373.5 | $ | 347.1 | $ | 346.2 | ||||||
Family Dollar | 4,650.1 | 4,678.1 | 4,678.1 | |||||||||
Total goodwill | $ | 5,023.6 | $ | 5,025.2 | $ | 5,024.3 |
• | the potential effect of inflation and other general business or economic conditions on our costs and profitability, including the potential effect of future changes in prevailing wage rates and overtime regulations and our plans to address these changes, shipping rates, domestic and import freight costs (including increases in domestic freight costs due to the shortage in truck drivers), fuel costs and wage and benefit costs, consumer spending levels, and population, employment and job growth and/or losses in our markets; |
• | the ability to retain key personnel at Family Dollar and Dollar Tree, including in connection with the consolidation of the Family Dollar headquarters from North Carolina to Virginia; |
• | our anticipated sales, including comparable store net sales, net sales growth and earnings growth; |
• | the outcome and costs of pending or potential litigation or governmental investigations; |
• | our growth plans, including our plans to add, renovate, rebanner, expand, relocate or close stores and any related costs or charges, our anticipated square footage increase, and our ability to renew leases at existing store locations; |
• | the potential effect of future law changes, including taxes and tariffs, including the actual and potential effect of Section 301 tariffs on Chinese goods imposed by the United States Trade Representative, the potential effect of anti-dumping duties imposed by the United States Department of Commerce, the Fair Labor Standards Act as it relates to the qualification of our managers for exempt status, minimum wage and health care law; |
• | the average size of our stores to be added in 2018 and beyond; |
• | the effect on our merchandise mix of consumables and the increase in the number of our stores with freezers and coolers and Snack Zone on Dollar Tree’s gross profit margin and sales; |
• | the effect of the Family Dollar renovation initiative and other initiatives on Family Dollar’s sales; |
• | the net sales per square foot, net sales and operating income of our stores; |
• | the benefits, results and effects of the Family Dollar acquisition and integration and the combined Company’s plans, objectives, expectations (financial or otherwise), including synergies, the cost to achieve synergies, the costs associated with the store support center consolidation and the effect on earnings per share; |
• | our gross profit margin, earnings, inventory levels and ability to leverage selling, general and administrative and other fixed costs; |
• | the effect of recent changes in tax laws; |
• | our seasonal sales patterns including those relating to the length of the holiday selling seasons; |
• | the capabilities of our inventory supply chain technology and other systems; |
• | the reliability of, and cost associated with, our sources of supply, particularly imported goods such as those sourced from China; |
• | the capacity, performance and cost of our distribution centers; |
• | our cash needs, including our ability to fund our future capital expenditures and working capital requirements and our ability to service our debt obligations, including our expected annual interest expense; |
• | our expectations regarding competition and growth in our retail sector; and |
• | management’s estimates associated with our critical accounting policies, including inventory valuation, accrued expenses, valuations for impairment analyses and income taxes. |
• | Our profitability is vulnerable to cost increases. |
• | We could encounter additional disruptions in our distribution network and have encountered and expect to encounter additional costs in distributing merchandise, such as freight cost increases due to the truck driver shortage and fuel cost increases. |
• | Integrating Family Dollar’s operations with ours may be more difficult, costly or time consuming than expected, including disruptions or the loss of key personnel in connection with the consolidation of the Family Dollar headquarters from North Carolina to Virginia. |
• | Our business could be adversely affected if we fail to attract and retain qualified associates and key personnel. |
• | Risks associated with our domestic and foreign suppliers, including, among others, increased taxes, duties, tariffs or other restrictions on trade (including Section 301 tariffs imposed by the United States Trade Representative on imported Chinese goods), could adversely affect our financial performance. |
• | A significant disruption in our computer and technology systems could adversely affect our results of operation or business. |
• | If we are unable to secure our customers’ credit card and confidential information, or other private data relating to our associates, suppliers or our business, we could be subject to negative publicity, costly government enforcement actions or private litigation, which could damage our business reputation and adversely affect our results of operation or business. |
• | Our growth is dependent on our ability to increase sales in existing stores and to expand our square footage profitably. |
• | Our profitability is affected by the mix of products we sell. |
• | Litigation may adversely affect our business, financial condition and results of operations. For a discussion of current legal proceedings, see “Note 4 - Legal Proceedings,” included in “Part I. Financial Information, Item 1. Financial Statements” of this Form 10-Q. |
• | Pressure from competitors may reduce our sales and profits. |
• | A downturn or changes in economic conditions could impact our sales or profitability. |
• | Changes in federal, state or local law, including regulations and interpretations or guidance thereunder, or our failure to adequately estimate the impact of such changes or comply with such laws, could increase our expenses, expose us to legal risks or otherwise adversely affect us. |
• | The price of our common stock is subject to market and other conditions and may be volatile. |
• | Our substantial indebtedness could adversely affect our financial condition, limit our ability to obtain additional financing, restrict our operations and make us more vulnerable to economic downturns and competitive pressures. |
• | The terms of the agreements governing our indebtedness may restrict our current and future operations, particularly our ability to respond to changes or to pursue our business strategies, and could adversely affect our capital resources, financial condition and liquidity. |
• | Our variable-rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly. |
• | Certain provisions in our Articles of Incorporation and Bylaws could delay or discourage a change of control transaction that may be in a shareholder’s best interest. |
39 Weeks Ended | |||||||||||||||||
November 3, 2018 | October 28, 2017 | ||||||||||||||||
Dollar Tree | Family Dollar | Total | Dollar Tree | Family Dollar | Total | ||||||||||||
Store Count: | |||||||||||||||||
Beginning | 6,650 | 8,185 | 14,835 | 6,360 | 7,974 | 14,334 | |||||||||||
New stores | 237 | 166 | 403 | 264 | 202 | 466 | |||||||||||
Rebannered stores | 47 | (49 | ) | (2 | ) | — | — | — | |||||||||
Closings | (11 | ) | (38 | ) | (49 | ) | (20 | ) | (36 | ) | (56 | ) | |||||
Ending | 6,923 | 8,264 | 15,187 | 6,604 | 8,140 | 14,744 | |||||||||||
Relocations | 44 | 9 | 53 | 78 | 27 | 105 | |||||||||||
Selling Square Feet (in millions): | |||||||||||||||||
Beginning | 57.3 | 59.3 | 116.6 | 54.7 | 57.7 | 112.4 | |||||||||||
New stores | 2.0 | 1.2 | 3.2 | 2.2 | 1.4 | 3.6 | |||||||||||
Rebannered stores | 0.3 | (0.3 | ) | — | — | — | — | ||||||||||
Closings | (0.1 | ) | (0.3 | ) | (0.4 | ) | (0.2 | ) | (0.2 | ) | (0.4 | ) | |||||
Relocations | 0.1 | — | 0.1 | 0.2 | — | 0.2 | |||||||||||
Ending | 59.6 | 59.9 | 119.5 | 56.9 | 58.9 | 115.8 |
• | We have experienced disruptions and higher than anticipated freight costs primarily due to the truck driver shortage in the United States. This will result in higher costs in future periods as merchandise is sold and could result in lower sales if product is not received in our stores on a timely basis. |
• | The United States Trade Representative (USTR) implemented Section 301 tariffs against $250 billion in Chinese goods. The tariff rate on $200 billion of those goods is expected to rise from 10 percent to 25 percent in 2019. We do not expect that the tariffs will be material to our business or results of operations in 2018. When the tariffs were implemented, approximately nine percent of our products, measured by sales volume, would have been affected. To mitigate the potential adverse effect, we negotiated price concessions from vendors on certain products, canceled orders, changed product sizes and specifications, changed our product mix and changed vendors. At Dollar Tree and Family Dollar, we have mitigated approximately 80 percent and 50 percent, respectively, of this potential adverse |
• | Shrink costs increased approximately 25 basis points due to unfavorable inventory results in the current quarter. |
• | Markdown expense increased approximately 25 basis points primarily due to increased promotional markdowns in the Family Dollar segment. |
• | Distribution costs increased approximately 25 basis points resulting primarily from higher distribution center payroll costs. |
• | Merchandise cost, including freight, increased approximately 20 basis points resulting from higher domestic freight costs, partially offset by improved mark-on. |
• | Occupancy costs increased approximately 15 basis points resulting from higher real estate tax costs in 2018. |
• | Operating and corporate expenses decreased approximately 25 basis points resulting from lower advertising costs, legal fees and a gain on sale of fixed assets in the current year quarter. |
• | Depreciation and amortization costs decreased approximately 10 basis points as a result of assets becoming fully depreciated on the Family Dollar segment. |
• | Payroll expenses increased approximately 25 basis points as a result of the net of the following: |
◦ | Store hourly payroll costs increased approximately 40 basis points due to the planned reinvestment of income tax savings. |
◦ | Insurance benefits increased approximately 10 basis points resulting from higher health care claims in the current quarter. |
◦ | Incentive compensation costs decreased approximately 15 basis points as a result of lower earnings compared to targets in the current year. |
• | Shrink costs increased approximately 25 basis points due to unfavorable inventory results in the current year. |
• | Distribution costs increased approximately 20 basis points resulting primarily from higher distribution center payroll costs. |
• | Merchandise cost, including freight, increased approximately 10 basis points resulting from higher domestic freight costs, partially offset by improved mark-on. |
• | Occupancy costs increased approximately 10 basis points resulting from higher real estate tax expense in the current year. |
• | Payroll costs increased approximately 40 basis points primarily due to higher store hourly payroll costs as a result of the planned reinvestment of income tax savings, partially offset by decreased incentive compensation costs resulting from lower earnings compared to targets in 2018. |
• | Store operating costs decreased approximately 10 basis points resulting from lower repairs and maintenance costs as a percentage of sales. |
• | Depreciation and amortization costs decreased approximately 10 basis points as a result of assets becoming fully depreciated on the Family Dollar segment and leverage from the comparable store net sales increase for the Dollar Tree segment. |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 | November 3, 2018 | October 28, 2017 | |||||||||||||||||||||||||
(in millions) | $ | % of Sales | $ | % of Sales | $ | % of Sales | $ | % of Sales | ||||||||||||||||||||
Net sales | $ | 2,853.8 | $ | 2,685.0 | $ | 8,407.0 | $ | 7,843.6 | ||||||||||||||||||||
Gross profit | 993.7 | 34.8 | % | 942.6 | 35.1 | % | 2,909.8 | 34.6 | % | 2,735.0 | 34.9 | % | ||||||||||||||||
Operating income | 331.9 | 11.6 | % | 317.3 | 11.8 | % | 959.8 | 11.4 | % | 921.9 | 11.8 | % |
• | Shrink increased approximately 15 basis points resulting from unfavorable inventory results in the current quarter. |
• | Distribution costs increased approximately 15 basis points resulting from higher distribution depreciation and payroll costs. |
• | Merchandise cost, including freight, was consistent with the prior year quarter as higher initial mark-on was offset by increased domestic freight costs. |
• | Shrink costs increased approximately 20 basis points resulting from unfavorable inventory results in the first nine months of the year. |
• | Distribution costs increased approximately 10 basis points primarily resulting from higher distribution center payroll costs. |
• | Merchandise cost, including freight, increased approximately 5 basis points primarily due to higher domestic freight costs, partially offset by higher initial mark-on. |
• | Occupancy costs decreased approximately 10 basis points resulting from the leverage from the comparable store net sales increase in the first nine months of the year. |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 | November 3, 2018 | October 28, 2017 | |||||||||||||||||||||||||
(in millions) | $ | % of Sales | $ | % of Sales | $ | % of Sales | $ | % of Sales | ||||||||||||||||||||
Net sales | $ | 2,685.0 | $ | 2,631.6 | $ | 8,211.1 | $ | 8,041.3 | ||||||||||||||||||||
Gross profit | 678.2 | 25.3 | % | 723.4 | 27.5 | % | 2,125.6 | 25.9 | % | 2,185.9 | 27.2 | % | ||||||||||||||||
Operating income | 55.9 | 2.1 | % | 107.9 | 4.1 | % | 248.1 | 3.0 | % | 311.6 | 3.9 | % |
• | Merchandise cost, including freight, increased approximately 60 basis points, primarily due to higher domestic freight costs. |
• | Markdown expense increased approximately 50 basis points in the current quarter primarily from increased promotional markdowns. |
• | Distribution costs increased approximately 40 basis points resulting primarily from higher merchandising and distribution payroll-related costs. |
• | Shrink costs increased approximately 40 basis points resulting from unfavorable physical inventory results in the current year. |
• | Occupancy costs increased approximately 35 basis points resulting from the deleveraging effect of the decrease in comparable store net sales and higher real estate taxes in the current year. |
• | Merchandise cost, including freight, increased approximately 40 basis points, primarily due to higher domestic freight costs, partially offset by increased initial mark-on. |
• | Occupancy costs increased approximately 30 basis points resulting from the deleveraging effect of the decrease in comparable store net sales and higher real estate taxes in the current year. |
• | Shrink costs increased approximately 30 basis points resulting from unfavorable physical inventory results in the current year. |
• | Distribution costs increased approximately 25 basis points resulting primarily from higher merchandising and distribution payroll-related costs. |
• | Operating and corporate expenses decreased approximately 40 basis points resulting from lower advertising expenses, legal fees and a gain on the sale of fixed assets. |
• | Depreciation and amortization expense decreased approximately 20 basis points as a result of certain assets that were revalued upon the 2015 acquisition becoming fully depreciated and/or amortized. |
• | Payroll expenses increased approximately 35 basis points primarily due to increased store hourly payroll expenses as a result of the planned reinvestment of income tax savings and higher health care claims, partially offset by lower incentive compensation expenses. |
• | Payroll expenses increased approximately 50 basis points primarily due to increased store hourly payroll expenses as a result of the planned reinvestment of income tax savings, partially offset by decreased incentive compensation costs. |
• | Depreciation and amortization expense decreased approximately 20 basis points as a result of certain assets that were revalued upon the 2015 acquisition becoming fully depreciated and/or amortized. |
39 Weeks Ended | ||||||||
November 3, | October 28, | |||||||
(in millions) | 2018 | 2017 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 1,050.9 | $ | 592.6 | ||||
Investing activities | (619.4 | ) | (445.5 | ) | ||||
Financing activities | (820.6 | ) | (613.6 | ) |
• | product safety matters, which may include product recalls in cooperation with the Consumer Products Safety Commission or other jurisdictions; |
• | Adopted a revised form of the Company’s previous change in control Retention Agreement that is offered to Company officers with the position of Chief, President or Executive Chairman, including the named executive officers. The revised Retention Agreement provides for a severance payment to the executive officer under certain circumstances in the event of a termination of employment following a change in control of the Company. The revisions to the original form of change in control Retention Agreement update the tax provisions applicable to severance payments under the agreement and make certain other non-material clarifying and technical changes. |
• | Approved the Company’s entry into an Executive Agreement that is offered to Company officers with the position of Vice President and above, including the named executive officers. The Executive Agreement contains certain restrictive and protective covenants, including non-competition, non-solicitation, non-disparagement and confidentiality, and provides for a salary continuation benefit in the event the executive’s employment is terminated without “cause” (as defined in the agreement). The salary continuation benefit is not conditioned upon a prior change in control of the Company but is offset where an executive may also be entitled to a payout under the Retention Agreement described above. |
Incorporated by Reference | ||||||||||
Exhibit | Exhibit Description | Form | Exhibit | Filing Date | Filed Herewith | |||||
3.1 | 8-K | 3.1 | 6/21/2013 | |||||||
3.2 | 8-K | 3.1 | 6/18/2018 | |||||||
10.1 | * | X | ||||||||
10.2 | * | X | ||||||||
31.1 | X | |||||||||
31.2 | X | |||||||||
32.1 | X | |||||||||
32.2 | X | |||||||||
101 | The following financial statements from the Company’s 10-Q for the fiscal quarter ended November 3, 2018, formatted in XBRL: (i) Condensed Consolidated Income Statements, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements | X | ||||||||
*Management contract or compensatory plan or arrangement |
DOLLAR TREE, INC. | |||
Date: | November 29, 2018 | By: | /s/ Kevin S. Wampler |
Kevin S. Wampler | |||
Chief Financial Officer | |||
(principal financial officer) |
1. | Effective Date. This Executive Agreement (the “Agreement”) shall become effective on [DATE], (the “Effective Date”). |
2. | Covenants. The following covenants are several and survive the termination of the other provisions of this Agreement and survive the termination of Executive’s employment for any reason (the final day of Executive’s employment with the Company is the “Separation Date”), whether or not Executive receives severance under this Agreement. |
a. | Confidential Information. Executive understands and acknowledges that during the course of Executive’s employment by the Company, Executive will have access to and learn about Confidential Information belonging to the Company. |
i. | Disclosure and Use Restrictions. Executive agrees and covenants: (i) to treat all Confidential Information as strictly confidential; (ii) not to directly or indirectly disclose, publish, communicate, or make available Confidential Information, or allow it to be disclosed, published, communicated, or made available, in whole or part, to any entity or person whatsoever (including other executives and employees of the Company not having a need to know such information); (iii) not to access or use any Confidential Information, and not to copy any documents, records, files, media, or other resources containing any Confidential Information, or remove any such documents, records, files, media, or other resources from the premises or control of the Company, except as required in the performance of Executive’s authorized employment duties to the Company or with the prior consent of Executive’s supervisor; and (iv) to immediately return and not retain, in any form, any such Confidential Information upon the Separation Date. Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid subpoena or order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or subpoena/order. Executive shall promptly provide written notice of any such order to the Company’s Chief Legal Officer, if permitted by law to do so. |
ii. | Whistleblower Protection and Notice of Immunity under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016. Notwithstanding any other provision of this Agreement or any other agreement or Company policy, Executive will not be held liable under this Agreement or any other agreement or Company policy or any federal or state trade secret law for any disclosure of a trade secret or other Confidential Information that is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (iii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. |
b. | Covenant Not to Compete. |
i. | Acknowledgment. Executive understands that the senior nature of Executive’s position gives Executive access to and knowledge of Confidential Information and places Executive in a position of trust and confidence with the Company and, further, that the improper use or disclosure by Executive of Confidential Information is likely to result in unfair or unlawful competitive activity that would substantially harm the Company. Executive understands and acknowledges that Executive’s experience and expertise relating to the business of a retailer are unique and specialized, and that the Company’s ability to reserve these talents for the exclusive knowledge and use of the Company during Executive’s employment and for a reasonable period thereafter is of great competitive importance and commercial value to the Company. |
ii. | Non-Competition. Because of the Company’s legitimate business interest as described herein and the good and valuable consideration offered to Executive herein, during Executive’s employment and for a [*] period beginning on the Separation Date, Executive agrees and covenants that Executive will not engage in any Prohibited Activity (as defined below) [*] for a Competitor (as defined below) [*]. This restrictive covenant applies whether Executive’s employment is terminated by Executive or by the Company for any reason or no reason. |
1. | For purposes of this non-compete, “Prohibited Activity” is [*]. |
2. | A “Competitor” is defined as [*]. |
3. | “Restricted Area” is defined as [*]. |
iii. | Nothing herein shall prohibit Executive from purchasing or owning less than five percent (5%) of the publicly traded securities of any corporation, provided that such ownership represents a passive investment and that Executive is not a controlling person of, or a member of a group that controls, such corporation. |
c. | Non-Piracy of Company Executives. Executive agrees and covenants that, for a period of [*] from the Separation Date, Executive shall not directly or indirectly solicit, hire, recruit, or attempt to hire or recruit, any Company Executive, or induce the termination of employment of any Company Executive. “Company Executive” means any person who at the time of, or within three months immediately prior to, the solicitation, hiring, recruitment, or inducement, was employed by the Company at a Director-level or more senior position. The types of communication prohibited by this provision explicitly include all forms of oral, written, or electronic communication, including, but not limited to, communications by email, regular mail, express mail, telephone, fax, instant message, and social media, where the purpose of or reasonably anticipated impact or consequence of the communication would be to solicit, hire or recruit such person. For the avoidance of doubt, this restriction applies regardless of whether the Executive or the Company Executive initiated the first communication. |
d. | Non-Disparagement. Executive agrees and covenants that, during Executive’s employment and for a period of [*] after the Separation Date, Executive will not make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company, or any of its executives, directors, and officers. This Section does not, in any way, restrict or impede Executive from exercising protected rights to the extent that such rights cannot be waived by agreement, including but not limited to Executive’s right to make a complaint or charge with or respond to an inquiry from any |
e. | Acknowledgment. Executive acknowledges and agrees that the services Executive will render to the Company are of a special and unique character; that Executive will obtain knowledge and skill relevant to the Company’s industry, methods of doing business, and logistical, operational, merchandising and marketing strategies by virtue of Executive’s employment; and that the restrictive covenants and other terms and conditions of this Agreement are reasonable and reasonably necessary to protect the legitimate business interests of the Company. |
f. | Remedies. In the event of a breach or threatened breach by Executive of any of the restrictive covenants of this Agreement, Executive hereby consents and agrees that the Company shall be entitled to seek (notwithstanding the Parties’ Mutual Agreement to Arbitrate Claims), in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages, or other available forms of relief including without limitation a claim for disgorgement of any severance paid to Executive pursuant to Section 4 below. |
3. | Termination of Employment. Executive’s employment may be terminated by either the Company or the Executive at any time and for any reason, with or without prior notice, and without liability except as set forth herein. |
4. | Severance Opportunity. Upon termination of Executive’s employment by the Company without Cause or by Executive’s Death or Disability, in addition to any accrued but unpaid base salary and any vested rights under any Company employee benefit plan, the Executive shall be entitled to receive the following severance benefits, receipt of which is subject to (a) Executive’s full and continued compliance with the Covenants set forth in Section 2 of this Agreement; (b) Executive’s execution, and non-revocation, of a separation agreement containing a release of claims in favor of the Company, its affiliates, and their respective officers and directors, and other relevant provisions in a form provided by and acceptable to the Company (the “Release”); and (c) Executive’s agreement to forego any other severance payment to which Executive may be entitled under any other agreement with the Company: |
a. | Continued Base Salary for [*] following the Separation Date, payable in equal installments in accordance with the Company’s normal payroll practices, which payments shall commence on |
b. | If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall reimburse Executive for the monthly COBRA premium paid by Executive for Executive and Executive’s qualified beneficiaries during the Salary Continuation Period. Such reimbursement shall be paid to Executive on a monthly basis, within ten (10) business days following the month in which Executive timely remits the premium payment. In the event Executive receives or becomes eligible to receive substantially similar coverage from another employer or other source during the Salary Continuation Period, Executive agrees to so inform the Company within three (3) business days, at which time COBRA reimbursements shall cease. Executive shall be solely responsible for the tax consequences of any such payments. |
c. | The treatment of any outstanding equity awards shall be determined in accordance with the terms of the Dollar Tree, Inc. Omnibus Incentive Plan or any other applicable plan or award agreement under which the equity awards were granted and nothing in this Agreement shall be construed as superseding the terms of any such plan or award. |
d. | For purposes of this Agreement, “Disability” shall mean (i) Executive’s inability, due to physical or mental incapacity, to perform the essential functions of Executive’s job, with or without reasonable accommodation, for one hundred eighty (180) days out of any three hundred sixty-five (365) day period or one hundred twenty (120) consecutive days, or (ii) Executive’s entitlement to receive long-term disability benefits under the Company’s long-term disability plan. Any question as to the existence of Executive’s Disability as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician selected by the Company, which determination shall be final and conclusive for all purposes of this Agreement. |
e. | For purposes of this Agreement, “Cause” shall mean Executive’s: (i) failure to perform Executive’s duties (other than any such failure resulting from Disability); (ii) engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, injurious to the Company; (iii) embezzlement, misappropriation, or fraud, whether or not related to Executive’s employment with the Company; (iv) conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude; (v) willful unauthorized disclosure of Confidential Information; (vi) breach of any material obligation under this Agreement; or (vii) failure to comply with material Company written policies or rules, as they may be in effect from time to time. |
f. | The Company intends the payments payable to Executive upon a termination of employment to be excepted from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) to the extent permissible and that each payment hereunder shall be treated as a separate payment for purposes of Section 409A of the Code. To the extent that any payment hereunder is subject to Section 409A of the Code, it shall be administered in compliance with the requirements thereof. To the extent required to avoid a violation of Section 409A of the Code, to the extent that the period between Executive’s termination of employment and the date on which the Release may become effective includes two calendar years, no payment under Section 4.a shall be made until the second calendar year. |
g. | Executive shall not be entitled to severance benefits if the Executive voluntarily resigns for any reason, including reasons that the Executive may assert constitute constructive discharge. |
5. | Governing Law: Jurisdiction and Venue. This Agreement, for all purposes, shall be construed in accordance with the laws of the State of Delaware, without regard to conflicts-of-law principles. Any action or proceeding by either of the Parties to enforce this Agreement shall be brought in accordance with the requirements of the Parties’ Mutual Agreement to Arbitrate Claims, or any other arbitration agreement between the Parties, except that the Company may seek temporary or permanent injunctive relief or other forms of immediate relief related to a breach by Executive of any of the covenants in this Agreement in the state or federal courts located in Wilmington, Delaware or Norfolk, Virginia. |
6. | Entire Agreement. Unless specifically provided herein, this Agreement and the Mutual Agreement to Arbitrate Claims (or any other arbitration agreement between the Parties) contain all the understandings and representations between Executive and the Company pertaining to the subject matter hereof and supersede all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter. |
7. | Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by Executive and by the Chief Executive Officer of the Company. No waiver by either of the Parties of any breach by the other party hereto of any condition or provision of this Agreement to be performed by the other party hereto shall be deemed a waiver of any similar or dissimilar provision or condition. |
8. | Severability. Should any provision of this Agreement be held by a court or arbitral authority of competent jurisdiction to be enforceable only if modified, or if any portion of this Agreement shall be held as unenforceable and thus stricken, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding on the Parties with any such modification to become a part hereof and treated as though originally set forth in this Agreement. The Parties further agree that any such court or arbitral authority is expressly authorized to modify any unenforceable provision of this Agreement. |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Gary Philbin | |
Gary Philbin | |
President and Chief Executive Officer |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Kevin S. Wampler | |
Kevin S. Wampler | |
Chief Financial Officer |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
November 29, 2018 | /s/ Gary Philbin |
Date | Gary Philbin |
President and Chief Executive Officer |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
November 29, 2018 | /s/ Kevin S. Wampler |
Date | Kevin S. Wampler |
Chief Financial Officer |
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