Dollar Tree Inc. (NASDAQ:DLTR)

The analysis of annual current and deferred income tax expense reveals noteworthy fluctuations and trends over the six-year period under review.

Current Taxes

The current income tax expense demonstrates a general downward trend from the fiscal year ending January 28, 2017, through February 1, 2020, decreasing from $560,800 thousand to $262,700 thousand. This notable reduction may reflect changes in taxable income levels, tax rates, or tax planning strategies. However, there is a reversal of this trend in the fiscal years ending January 30, 2021, and January 29, 2022, where current taxes increase to $367,100 thousand and then slightly decrease to $327,500 thousand, respectively. This pattern suggests some recovery or stabilization in tax expenses in more recent years.

Deferred Taxes

Deferred tax amounts fluctuate significantly throughout the period. Initially, in 2017, there is a negative deferred tax of $127,600 thousand, which sharply deepens to a substantial negative figure of $473,700 thousand in 2018. This large negative deferred tax expense could indicate significant temporary differences arising from timing differences in income recognition or deductible expenses. The deferred tax expense then swings dramatically to near neutrality in 2019 and 2020, with values of -$12,000 thousand and $9,000 thousand respectively. A positive deferred tax of $30,800 thousand is observed in 2021, followed by a negative $23,200 thousand in 2022, signaling volatility in deferred tax components which might be linked to adjustments in tax laws, valuation allowances, or changes in underlying asset or liability bases.

Provision for Income Taxes

The overall provision for income taxes combines current and deferred components and exhibits considerable variability across the years. Notably, 2018 stands out with a negative provision of $10,300 thousand, indicating a tax benefit rather than an expense for that year. This aligns with the significant negative deferred tax recognized in the same period. In contrast, other years show positive provisions ranging from $271,700 thousand in 2020 to a peak of $433,200 thousand in 2017. The fluctuating provision figures reflect the combined impact of changes in current tax liabilities and adjustments in deferred tax positions, highlighting the dynamic nature of the company’s income tax expense management over the examined time frame.

Statutory U.S. federal income tax rate

The statutory federal income tax rate shows a marked decline from 35% in 2017 to 21% beginning in 2019, where it remains stable through 2022. This reduction aligns with legislative changes affecting corporate tax rates.

State and local income taxes, net of federal income tax benefit

State and local tax rates fluctuate moderately over the periods, initially at 3% in 2017, dipping to -3% in 2019, then rising to around 3.7% in 2020 and 2022. This volatility suggests varying state tax impacts and adjustments to federal benefits across the years.

Non-deductible executive compensation

This expense appears only in 2021 and 2022, consistently at 0.4%, indicating the recognition of an additional non-deductible cost component in these years.

State tax reserve release

Negative values in 2021 and 2022 (-0.5% and -0.4%) indicate releases of state tax reserves, which reduce overall tax expense in those years.

Incremental tax expense (benefit) of exercises/vesting of equity-based compensation

This item fluctuates between minor positive and negative impacts, with small expense in 2021 (0.2%) and a notable benefit in 2022 (-0.5%). Prior years show mostly negative or near-zero effects, indicating variability in tax impact from equity compensation activities.

Work Opportunity Tax Credit

The credit contributes a consistent tax benefit, ranging mostly between -1.6% and -2.7% across the years, except for a positive value (2%) in 2019, suggesting some intermittent changes in qualification or recognition of this credit.

State tax election

Recorded only in 2017 at -1.4%, this item is absent in later years, indicating a one-time effect or change in tax strategy after 2017.

Deferred tax rate change

This component varies, exhibiting negative impacts in several years (-1.6% in 2017, -0.6% in 2018, -3.8% in 2022), a small positive effect in 2020 (0.1%), and missing data in some years. The change reflects adjustments in deferred tax calculations corresponding to tax rate shifts or policy changes.

Goodwill impairment

A significant one-time expense is evident in 2019 (-43.7%), indicating a major goodwill write-down that year. Small positive impact in 2020 (6%) suggests some reversal or adjustment, with no impacts in other years.

Change in valuation allowance

This item leans toward negative values, particularly in 2020 (-2.2%), signaling increased valuation allowances for deferred tax assets, which could reflect changes in expected future taxable income or asset realizability.

Other, net

Other impacts fluctuate with both negative and positive values, lacking a clear pattern but showing minor effects on tax rate ranging between -1% and 1.3% across the periods.

Effective tax rate, before Tax Cuts and Jobs Act

The pre-Act effective tax rate displays high variability. It decreases significantly to a negative rate in 2019 (-22.8%), then recovers to mid-20% range by 2020 and 2021, and declines slightly to 18.6% in 2022. This negative value in 2019 corresponds with the substantial goodwill impairment.

Tax Cuts and Jobs Act impact

The Act causes a sharp reduction in 2018 (-33%), with a minor positive adjustment in 2019 (1.3%). This reflects a one-time tax effect associated with the 2017 tax reforms.

Effective tax rate

The overall effective tax rate mirrors the fluctuations observed in the pre-Act rate and Act impact combined. Notably, it drops to -0.6% in 2018 following the Act, plunges to -21.5% in 2019 due to impairment charges, then stabilizes around 23% in 2020 and 2021, decreasing further to 18.6% in 2022, indicating a gradual normalization after disruptive events.

The analysis of the financial data over the given periods reveals several notable trends in key financial items. There are shifts indicative of changes in the company's leasing arrangements, tax positions, valuation of deferred tax assets, as well as movements in property and intangible assets.

Lease-related items

Deferred rent shows a decreasing trend from 59,900 in early 2017 to 44,300 in early 2019, after which related data points are absent. Operating lease liabilities emerge prominently from 2020 onwards, recording approximately 1,621,800 in early 2020 and gradually stabilizing around 1,648,300 by early 2022. Correspondingly, operating lease right-of-use assets appear starting in 2020 as a significant negative value, exceeding -1,550,100 and slightly reducing to -1,578,400 by early 2022. These developments suggest the adoption of accounting standards impacting lease recognition, resulting in large operating lease liabilities and right-of-use assets recorded on the balance sheet.

Tax-related items

Net operating losses, interest expense, and credit carryforwards increase from 71,400 in early 2017 to a peak of 102,200 in early 2020, then decline towards 91,500 by early 2022. Deferred tax assets demonstrate an increasing trajectory, notably surging from 208,500 in early 2019 to over 1,800,000 by early 2020 and maintain high levels thereafter. The valuation allowance against these deferred tax assets consistently decreases from -49,700 in early 2017 down to -13,000 by early 2022, indicating a reduction in expected uncollectible deferred tax assets. Consequently, deferred tax assets, net, correspondingly expand, reflecting improved tax asset realizability. Conversely, deferred tax liabilities markedly increase in magnitude from -1,137,100 in early 2019 to nearly -2,868,100 by early 2021, exhibiting a stabilization trend afterwards. The net deferred income taxes remain negative throughout but show a decreasing negative balance in recent periods, indicating nuanced changes in deferred tax positions.

Accrued expenses and compensation

Accrued expenses exhibit volatility, initially at 71,400 in early 2017, plunging to 17,800-18,000 in 2018 and 2019, then rising to 72,900 by early 2021 before declining again to 50,700 by early 2022. Accrued compensation expense generally trends upwards from 23,200 in early 2018 to a peak of 47,200 in early 2021, followed by a decline to 34,900 in early 2022. These fluctuations suggest variable timing and amounts of liabilities related to expenses and employee compensation.

Property, equipment, and intangibles

Property and equipment balances deepen their negative values over time, moving from -331,300 in early 2017 to -435,600 by early 2022, indicating ongoing capital expenditures or asset revaluations. Similarly, other intangibles show a consistent decrease in negative amounts, from -1,368,700 in early 2017 to -780,900 by early 2022, implying amortization, impairments, or disposals. Prepaids grow modestly in the later periods, with values near -26,000 by early 2022, signaling slight increases in prepaid asset balances.

Inventory and miscellaneous

Inventory data is sporadically reported, with negative values in earlier years diminishing from -7,000 in 2017 to -4,800 in 2021, and a positive figure of 24,400 in early 2022, possibly reflecting changes in inventory accounting or reporting. Other miscellaneous items show inconsistent values without a clear trend.

Overall, the financial data reflects significant effects of lease accounting changes starting in 2020, substantial growth in deferred tax assets and liabilities indicative of complex tax situations, variable accruals related to expenses and compensation, and a declining trend in intangible assets and property investments. The reduction in valuation allowance against deferred tax assets suggests improved expectations of future benefits from these assets. The data denotes the dynamic nature of the company's financial obligations and asset base over the analyzed periods.

Deferred Tax Assets

The recorded deferred tax assets appear only from January 30, 2021. At that point, the value was 24,400 thousand US dollars, which declined to 23,200 thousand in January 29, 2022, and further to 20,300 thousand in the latest period. This indicates a downward trend in the recognition or realization of deferred tax assets during this timeframe.

Deferred Tax Liabilities

Deferred tax liabilities show a fluctuating but generally downward trend over the entire period. Starting at a high of 1,458,900 thousand US dollars in January 28, 2017, the value dropped significantly to 985,200 thousand by February 3, 2018, and remained relatively stable with slight variations thereafter. Most recent values range between approximately 987,200 and 1,013,500 thousand, reflecting stability but at a lower level compared to 2017.

Overall Trends

The data illustrates a substantial reduction in deferred tax liabilities between 2017 and 2018, followed by relative steadiness with minor fluctuations. Deferred tax assets emerged in the later years and have been decreasing since their initial recognition. This pattern may suggest evolutions in tax position management or changes in temporary differences affecting the deferred taxes.

Total Assets

The reported total assets demonstrate a general upward trend from approximately $15.7 billion in early 2017 to about $21.7 billion by early 2022, with a notable dip in 2019 to $13.5 billion. Adjusted total assets closely mirror this pattern, with values slightly lower but following the same trajectory. The dip in 2019 indicates a significant reduction in asset base during that period, followed by a recovery and growth in subsequent years.

Total Liabilities

Reported total liabilities decreased from about $10.3 billion in early 2017 to $7.9 billion in early 2019 before increasing sharply to $14 billion by early 2022. Adjusted liabilities show a similar pattern but consistently exhibit lower values compared to reported liabilities, reflecting the impact of deferred income tax adjustments. The substantial increase in liabilities from 2019 onward suggests increased borrowings or obligations during this time frame.

Shareholders’ Equity

The reported shareholders’ equity values fluctuate over the period, starting at approximately $5.4 billion in 2017, rising to $7.2 billion in 2018, dipping to $5.6 billion in 2019, then recovering and growing to nearly $7.7 billion by 2022. Adjusted equity exhibits a similar trend but at consistently higher levels, reinforcing that adjustments for deferred income taxes increase the reported equity base. The dip in 2019 corresponds with the reduction in total assets and may relate to the net loss recorded that year.

Net Income (Loss)

The reported net income shows variability across the years. Beginning with a profit of approximately $896 million in 2017, it nearly doubles to about $1.7 billion in 2018. There is a significant downturn in 2019, resulting in a loss of approximately $1.6 billion. Following this, the company returns to profitability with incomes of around $827 million, $1.3 billion, and $1.3 billion in 2020, 2021, and 2022 respectively. Adjusted net income similarly follows this pattern and reflects the impact of income tax adjustments, generally showing lower profitability compared to reported figures except in the loss year where the loss magnitude is slightly greater.

Overall Analysis

The data illustrates a company experiencing fluctuations in financial performance and position over the six-year period. The dip in both assets and equity in 2019, coinciding with a substantial net loss, suggests that year was a challenging period. However, the subsequent recovery in assets, liabilities, equity, and net income indicates a return to growth and profitability. Adjustments for deferred income taxes generally result in lower reported liabilities and higher shareholders’ equity, which impacts net income figures, especially in profitable years. The increasing trend in total liabilities after 2019 should be monitored for its impact on financial risk.

The analysis of the financial data reveals several noteworthy trends in profitability, efficiency, leverage, and returns over the six-year period.

Net Profit Margin

The reported net profit margin demonstrates significant volatility, starting at 4.33% in early 2017, peaking at 7.71% in early 2018, then plunging sharply to a negative margin of -6.97% in early 2019. This loss position is followed by a recovery phase, with the margin improving to 3.5% in 2020 and stabilizing around 5% in the subsequent years. The adjusted net profit margin follows a similar pattern but with slightly more conservative figures, indicating that adjustments somewhat moderate the reported results without altering the overall trend.

Total Asset Turnover

The total asset turnover ratio reflects the company's asset utilization efficiency. Both reported and adjusted data show identical values, starting at 1.32 in 2017 and increasing to 1.69 in 2019, indicating improved asset efficiency leading up to that year. However, from 2019 onward, the ratio declines and stabilizes at approximately 1.21, suggesting a decrease in asset turnover efficiency or a shift in asset structure during this period.

Financial Leverage

Financial leverage ratios reveal a varying use of debt relative to equity. The reported financial leverage decreases from 2.91 in 2017 to 2.27 in 2018, then rises sharply to 3.13 in 2020 before settling around 2.8 in the following years. The adjusted financial leverage follows a similar trajectory but consistently reports lower leverage levels, suggesting that certain liabilities may have been reclassified or adjusted, resulting in a lower leverage assessment. The peak observed in 2020 indicates a temporary increase in leverage usage during that year.

Return on Equity (ROE)

The reported ROE trend exhibits substantial fluctuation, beginning at 16.63% in 2017, rising to a high of 23.87% in 2018, then suffering a steep decline to -28.19% in 2019, consistent with the negative net profit margin of that year. The subsequent recovery to positive values is evident, with ROE reaching over 17% by 2022. Adjusted ROE figures are generally lower than reported values but mirror the same cyclical pattern, indicating that adjustments temper the volatility but do not remove the underlying trend.

Return on Assets (ROA)

Reported ROA shows a similar pattern to ROE and net profit margin. It increases from 5.71% in 2017 to 10.5% in 2018, then drops to -11.78% in 2019, before rebounding to over 6% in the last two years. Adjusted ROA percentages are consistently lower, again reflecting conservative adjustments, yet they follow the same temporal trend. This communicated the company’s effective asset utilization closely linked to profitability variations during the analyzed period.

Overall, the data delineates a period of significant profit volatility centered around the fiscal year 2019, characterized by negative profitability and returns. Efficiency, as measured by asset turnover, peaked before the downturn and then stabilized at a lower level. Financial leverage saw fluctuations with a notable increase in 2020, which may have been a strategic response to the adverse profit scenario. Adjusted figures consistently show more conservative estimates across most metrics but do not obscure the fundamental trends observed in reported numbers.

The financial data reveals significant fluctuations in both reported and adjusted net income over the examined periods, along with corresponding changes in net profit margins.

Net Income Trends

The reported net income increased sharply from approximately $896 million in early 2017 to about $1.71 billion in 2018, indicating strong profitability growth during that period. However, there was a notable reversal in 2019 when the company recorded a substantial reported net loss of around $1.59 billion. Following this downturn, profitability recovered, reaching approximately $827 million in 2020 and then improving further to over $1.34 billion in 2021, before a slight decline to roughly $1.33 billion in 2022.

The adjusted net income pattern closely mirrors that of the reported figures, with a peak of $1.24 billion in 2018, a significant loss of about $1.6 billion in 2019, and a recovery thereafter, culminating in approximately $1.30 billion in 2022. The small differences between reported and adjusted net income suggest that adjustments for deferred income tax or other factors slightly affected net income figures but did not change the overall trend significantly.

Net Profit Margin Dynamics

Reported net profit margin exhibited considerable volatility, increasing from 4.33% in 2017 to a peak of 7.71% in 2018, before turning negative at -6.97% in 2019. The margin then recovered steadily to 3.5% in 2020, rising further to 5.26% in 2021, and slightly easing to 5.05% in 2022. This pattern aligns with the net income fluctuations, reflecting a major setback in 2019 followed by a return to profitability.

Adjusted net profit margin shows a similar trajectory, though levels are marginally lower in some years compared to reported margins, ranging from 3.71% in 2017 to a low of -7.02% in 2019 and recovering thereafter. The adjusted margins slightly outperform reported margins in 2020 and 2021, indicating that adjustments might have modestly improved the profitability picture during the recovery phase.

Overall Insights

The data indicates a significant disruption or event around 2019 leading to a substantial loss, reflected in both income and margin figures. The subsequent recovery phases show improved financial performance and stabilization in profitability. Adjustments applied to net income and margins appear to moderately smooth the results but do not alter the overall financial performance story. Profitability remains positive and relatively stable post-2019, though the peak levels observed in 2018 were not fully regained.

The analysis of the financial metrics over the six-year period reveals several notable trends and patterns. Both reported and adjusted total assets reflect a general upward progression, with some fluctuations in the intermediate years. The total asset turnover ratios, consistent across reported and adjusted data, demonstrate variability that suggests shifts in asset utilization efficiency.

Total Assets

The reported total assets increased from $15,701,600 thousand in 2017 to $21,721,800 thousand in 2022, indicating substantial growth in the asset base. There was a dip in 2019 when total assets decreased to $13,501,200 thousand, followed by a sharp increase in 2020 to $19,574,600 thousand. The figures continued rising moderately through 2021 and 2022.

The adjusted total assets closely mirror the reported totals, suggesting minor impact from adjustments related to reported and deferred income taxes. The slight differences appear mainly from 2020 onward, with adjusted assets slightly lower than reported figures each year, but the trend remains consistent.

Total Asset Turnover Ratio

The reported total asset turnover ratio showed an upward trend from 1.32 in 2017 to a peak of 1.69 in 2019, indicating improved efficiency in generating revenue from assets during that period. However, from 2020 onwards, the ratio declined to 1.21 by 2022, signifying a decrease in asset utilization efficiency despite the growth in total assets.

Adjusted total asset turnover ratios align exactly with reported ratios over all periods, confirming that tax-related adjustments did not affect this efficiency metric.

Overall, the data suggests a pattern where the company expanded its asset base significantly over the six years, particularly after a contraction in 2019. While the asset base grew, efficiency in using these assets to generate sales, as measured by the turnover ratio, peaked in 2019 and then deteriorated somewhat through 2022. The negligible differences between reported and adjusted data imply that income tax adjustments had limited impact on the reported financial position and operational efficiency metrics.

The data reveals several important trends regarding the balance sheet structure over the six-year period.

Total Assets

Both reported and adjusted total assets experienced fluctuations. Reported total assets decreased notably in the year ending February 2019 but then increased substantially through 2020 to 2022. Adjusted total assets followed a very similar pattern, with a slight difference in values starting from 2020 onwards, reflecting some adjustments in accounting or tax treatments.

Shareholders’ Equity

Reported shareholders’ equity showed a downward trend from 2018 to 2019 but then recovered gradually through 2022. The adjusted shareholders’ equity values were consistently higher than the reported figures throughout the period, indicating positive adjustments likely related to deferred tax effects or other accounting considerations. The adjusted equity also followed the same overall trajectory of decline and recovery with a peak in 2018 and increase in later years.

Financial Leverage

Reported financial leverage ratios decreased from 2017 to 2018, signaling reduced leverage, then increased sharply in 2020, before declining slightly thereafter. The adjusted financial leverage ratios remained consistently lower than reported leverage ratios, implying more conservative leverage when adjustments are considered. Adjusted leverage also rose in 2020 but remained below the reported ratios throughout the period. Both leverage measures indicate increased reliance on debt or liabilities during 2020, with subsequent stabilization.

Overall, the patterns suggest a period of asset contraction around 2019, followed by robust asset growth. Equity levels after adjustment maintained higher values than reported figures, reflecting favorable accounting treatments. The leverage trends highlight a notable increase in financial risk or debt usage in 2020, which then moderated. Adjustments for deferred taxes and other items play a significant role in presenting a more conservative view of financial leverage and equity strength.

Net Income Trends

Reported net income exhibited significant volatility over the periods. After an initial amount of approximately $896 million in early 2017, it increased substantially to over $1.7 billion in early 2018, before experiencing a sharp decline to a loss of around $1.59 billion in early 2019. The net income then recovered to positive territory, reaching $827 million in 2020, and later rose further to approximately $1.34 billion in 2021, followed by a slight decrease to about $1.33 billion in 2022.

Adjusted net income followed a similar pattern, though values were consistently lower than the reported figures, indicating the impact of certain adjustments. The adjusted figures also showed a negative spike in early 2019, with a loss of approximately $1.6 billion, before stabilizing to positive values in subsequent years, slightly varying around the $1.3 billion to $1.37 billion range.

Shareholders’ Equity Trends

Reported shareholders’ equity demonstrated steady growth overall, starting from roughly $5.39 billion in early 2017 and increasing to about $7.72 billion by early 2022. One anomaly was observed in early 2019, when the equity decreased to approximately $5.64 billion from a prior high, followed by recovery and continuous growth over the succeeding years.

Adjusted shareholders’ equity figures were consistently higher than the reported values, suggesting that adjustments increased the equity base. Similar growth patterns were evident, with equity moving from about $6.85 billion in 2017 to $8.69 billion in 2022, also showing a dip in 2019 but with a quicker recovery and stronger upward trend afterward.

Return on Equity (ROE) Analysis

Reported ROE reflected the net income trends, showing a peak of 23.87% in early 2018, followed by a significant deficit of -28.19% in early 2019, coinciding with the loss reported that year. Subsequent years witnessed a recovery to positive returns, with values stabilizing between 13.22% and 18.42%, and a slight decrease to 17.20% in early 2022.

Adjusted ROE consistently remained below reported ROE, indicating that the adjustments led to reduced profitability measures relative to equity. The adjusted ROE mirrored the volatility seen in reported figures, falling from a high of 15.19% in 2018 to -24.23% in 2019, and recovering to a range of 11.59% to 16.59% through 2021, before slightly declining to 15.02% in 2022.

Overall Insights

The financial data reveals a period marked by significant earnings volatility, particularly the sharp downturn in 2019, which affected profitability and equity values. The adjusted metrics suggest that certain accounting adjustments have a notable effect, generally lowering net income, equity, and returns on equity compared to reported figures. Post-2019, the company demonstrated resilience with steady equity growth and recovery of profitability, stabilizing at healthy positive levels through 2021 and 2022.

These trends highlight the importance of looking beyond reported figures to adjusted data for a comprehensive understanding of financial performance and risk. The recovery after the 2019 downturn indicates an effective response to adverse conditions, but the continuing gap between reported and adjusted figures suggests ongoing impacts from deferred tax or other adjustments on reported financial results.

Net Income Trends

The reported net income fluctuated significantly over the periods analyzed. Starting at $896.2 million in early 2017, it more than doubled to $1.714 billion by early 2018. However, there was a sharp reversal in early 2019, with a substantial loss of $1.59 billion. Following this loss, the company returned to profitability, reporting net incomes of $827 million in 2020, $1.342 billion in 2021, and $1.328 billion in 2022. Adjusted net income exhibited a similar pattern, with profitability in most years except for a comparable loss in 2019. The adjusted figures generally show lower profitability than the reported figures but maintain the same overall trend.

Total Assets Evolution

The total assets showed a gradual increase over the period, with a dip in 2019. Reported total assets increased from approximately $15.7 billion in 2017 to $16.3 billion in 2018 but dropped to $13.5 billion in 2019, coinciding with the net income loss. Subsequently, assets grew steadily to $19.57 billion in 2020, $20.7 billion in 2021, and $21.7 billion in 2022. Adjusted total assets mirrored this trend closely, with minor differences in the last three years, indicating consistency in asset valuation adjustments.

Return on Assets (ROA) Performance

Reported ROA followed the net income trajectory, starting at 5.71% in 2017, peaking at 10.5% in 2018, and declining sharply to -11.78% in 2019. After the recovery year, ROA stabilized at 4.22% in 2020, then improved to 6.48% in 2021 and slightly declined to 6.11% in 2022. The adjusted ROA values are consistently lower than reported ROA in profitable years, suggesting that adjustments moderately reduce the profitability measure. Notably, the adjusted ROA exhibits a less pronounced improvement in 2018 and a similar negative performance in 2019 before stabilizing around 6% in recent years.

Insights and Observations

The data indicates a volatile financial performance primarily centered around the loss experienced in 2019, which also corresponds with a reduction in total assets. The recovery phase from 2020 onward shows steady improvements in profitability and asset growth. The difference between reported and adjusted figures reveals that income tax adjustments have a meaningful impact on reported profitability but do not materially alter asset valuations. The steadier ROA in recent years reflects improved operational efficiency or asset management post-recovery.