Analysis of Debt
Total Debt (Carrying Amount)
Dollar Tree Inc., balance sheet: debt
US$ in thousands
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
Total long-term debt exhibited a consistent downward trajectory between January 2017 and January 2021, followed by a modest increase in January 2022. The total carrying amount decreased from approximately $6.32 billion in 2017 to a low of $3.23 billion in 2021, representing a total reduction of nearly 49% over the four-year period.
- Long-term Debt Reduction Trend
- A systematic decline in total long-term debt is observed from 2017 through 2021. The most significant reduction occurred between February 2018 and February 2019, during which total debt decreased by approximately $1.41 billion. This sustained downward trend indicates a period of aggressive deleveraging or the consistent repayment of maturing obligations.
- Analysis of Debt Composition
- The allocation between current and non-current debt shows notable volatility. The current portion of long-term debt peaked at $915.9 million in February 2018, whereas it was absent or negligible in 2019, 2021, and 2022. This pattern suggests that short-term debt obligations are periodically concentrated in specific years as larger notes approach their maturity dates.
- Recent Debt Trajectory
- The multi-year trend of debt reduction reversed in January 2022. Total long-term debt increased to $3.42 billion from the $3.23 billion reported in January 2021. Because the current portion of debt was zero during this period, the entire increase is attributed to long-term debt, net of the current portion, signaling a potential shift toward new long-term financing.
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Total Debt (Fair Value)
| Jan 29, 2022 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Senior Notes | 3,558,500) |
| Revolving Credit Facility | 6,400) |
| Term Loans | —) |
| Forgivable Promissory Note | —) |
| Total long-term debt (fair value) | 3,564,900) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.04 |
Based on: 10-K (reporting date: 2022-01-29).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on long-term debt: 3.68%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 1.28% | 6,400) | 82) | |
| 4.00% | 1,004,000) | 40,160) | |
| 4.20% | 1,258,100) | 52,840) | |
| 2.65% | 809,500) | 21,452) | |
| 3.38% | 405,000) | 13,669) | |
| Total | 3,483,000) | 128,203) | |
| 3.68% | |||
Based on: 10-K (reporting date: 2022-01-29).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 128,203 ÷ 3,483,000 = 3.68%
Interest Costs Incurred
Dollar Tree Inc., interest costs incurred
US$ in thousands
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
The overall trajectory of interest costs incurred exhibits a distinct bipartite pattern, characterized by high volatility between 2017 and 2019, followed by a significant and sustained reduction from 2020 through 2022.
- Interest Cost Volatility (2017-2019)
- During the initial three-year period, total interest costs fluctuated significantly, peaking at 377,900 thousand US$ in 2017, decreasing to 304,100 thousand US$ in 2018, and returning to 374,200 thousand US$ in 2019.
- Significant Cost Reduction (2020-2021)
- A sharp decline is observed starting in 2020, where interest costs incurred fell to 164,500 thousand US$, representing a reduction of approximately 56% from the previous year. This downward trend continued slightly into 2021, reaching a period low of 150,500 thousand US$.
- Recent Trends and Stabilization (2022)
- By 2022, interest costs showed a modest increase to 180,000 thousand US$. Despite this uptick, the costs remain substantially lower than the levels recorded prior to 2020.
- Interest Capitalization Impact
- Capitalized interest has remained minimal relative to total interest costs throughout the analyzed period. The highest capitalization occurred in 2019 at 4,200 thousand US$, while the lowest was recorded in 2022 at 1,100 thousand US$. The consistently small margin between net interest expense and total interest costs incurred indicates that capitalization does not materially influence the overall interest cost profile.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
2022 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense, net
= 1,811,100 ÷ 178,900 = 10.12
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= 1,811,100 ÷ 180,000 = 10.06
The analysis of interest coverage indicates a volatile but generally improving capacity to service debt obligations over the observed six-year period. A significant fluctuation occurred in 2019, followed by a strong recovery and subsequent stabilization at levels substantially higher than the initial 2017 baseline.
- Adjusted Interest Coverage Trend
- The adjusted interest coverage ratio began at 4.51 in January 2017 and rose to 6.60 by February 2018. A sharp contraction occurred in February 2019, where the ratio fell to -2.51, indicating that earnings were insufficient to cover interest expenses during that period. Following this decline, a rapid recovery was observed, with the ratio climbing to 7.66 in February 2020 and peaking at 12.54 in January 2021, before settling at 10.06 in January 2022.
- Comparative Analysis of Coverage Metrics
- A minimal variance is observed between the interest coverage ratio without capitalized interest and the adjusted interest coverage ratio with capitalized interest. For example, in January 2021, the difference was only 0.27 (12.81 versus 12.54). This suggests that capitalized interest has a negligible impact on the overall assessment of the company's ability to meet its interest obligations.
- Debt Service Sustainability
- The transition from a negative ratio in 2019 to a double-digit ratio by 2021 reflects a substantial improvement in financial health. The final recorded value of 10.06 in January 2022 demonstrates a robust margin of safety, indicating that operating earnings are more than ten times the required interest payments.
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