Dollar Tree reported results for its first fiscal quarter ended April 29, 2017.
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Consolidated net sales increased 4.0% to $5.29 billion from $5.09 billion in the prior year's first quarter. Enterprise same-store sales increased 0.5%.
The same-store sales growth was driven by increases in average ticket and comparable transaction count. Same-store sales for the Dollar Tree banner increased 2.5%. Same-store sales for the Family Dollar banner decreased 1.2%.
Gross profit increased 4.7% to $1.63 billion in the quarter compared to $1.55 billion in the prior year's first quarter.
As a percent of sales, gross margin increased to 30.8% compared to 30.6% in the prior year. The improvement was driven primarily by lower merchandise and freight costs, partially offset by higher markdowns.
Selling, general and administrative expenses were 23.4% of sales compared to 22.3% of sales in the prior year's first quarter.
Excluding the receivable impairment charge described below, selling, general and administrative expenses were 22.5% of sales.
The increase, as a percentage of sales, was driven primarily by higher payroll expenses and advertising expenses, partially offset by lower depreciation.
In the first quarter of 2017, the company evaluated the collectability of its divestiture-related receivable from Dollar Express, which acquired the stores that the FTC required the company to divest.
Dollar Express is in the process of liquidating, is in default of its obligations to the company including its obligation to pay the receivable, and is not cooperating.
Based on a number of factors, the company determined the outstanding balance of $50.9 million was not recoverable and recorded an impairment charge to write down the receivable to zero.
The charge is recorded as "Receivable impairment" in the accompanying condensed consolidated income statements.
The company plans to take all appropriate actions, which we expect to include litigation against Dollar Express and others, to enforce the company's rights.
Operating income, including the receivable impairment charge, decreased 7.1% to $388.8 million, or 7.4% of sales, compared with $418.7 million, or 8.2% of sales, in the same period last year.
Excluding the receivable impairment charge, adjusted operating income increased 5.0% to $439.7 million compared with $418.7 million in the same period last year.
Adjusted operating income margin improved to 8.3% in the current quarter from 8.2% in last year's quarter. ■