Dollar Tree Inc. (NASDAQ:DLTR)

The analyzed financial data reveals several notable trends in the company's profitability and capital efficiency over the six-year period from early 2017 to early 2022.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values show fluctuations, with a significant negative dip in the year ending February 2, 2019, where the value registered -1,112,626 thousand USD, indicating a substantial operational loss during that period. Other years present positive NOPAT values, with the highest recorded in the year ending January 30, 2021, at 1,686,673 thousand USD. Despite this peak, the figure slightly declined to 1,622,053 thousand USD in the following year, suggesting some erosion of operating profitability after 2021. Overall, NOPAT exhibits volatility with occasional sharp downturns.

Cost of Capital

The cost of capital shows an upward trend throughout the period, starting at 8.7% in 2017 and increasing steadily to 10.5% by early 2022. This gradual rise suggests an increasing expected return by investors or increased risk perception associated with the company's capital structure or market environment. The increase may have implications on investment and financing decisions due to higher hurdle rates for project evaluation.

Invested Capital

Invested capital experiences an overall decline from approximately 19.17 billion USD in early 2017 to a low of around 16.99 billion USD by early 2020. Following this decrease, there is a recovery and slight growth, reaching roughly 18.20 billion USD by early 2022. This pattern indicates a period of capital contraction followed by gradual reinvestment or growth in capital assets. Such fluctuations might be reflective of strategic divestments or asset reallocation.

Economic Profit

Economic profit remains negative throughout the entire period, indicating the company failed to earn returns in excess of its cost of capital during these years. The largest negative economic profit was recorded in 2019 at -2,799,488 thousand USD, coinciding with the negative NOPAT in the same period. Although subsequent years show improved economic profit figures, the values remain below zero, with only a moderate reduction in losses by early 2022 compared to earlier years. This ongoing negative economic profit highlights challenges in value creation despite positive operating earnings in most years.

In summary, the company experiences variable operational profitability with a marked loss in 2019, an increasing cost of capital over the analyzed period, and fluctuating invested capital levels that recover post-2020. However, persistent negative economic profit indicates that the company has struggled to generate returns exceeding its capital costs, signaling potential issues in operational efficiency or capital allocation strategies.

Net Income (Loss) Trend

The net income exhibited significant fluctuations over the observed periods. Initially, there was a substantial increase from approximately $896.2 million in early 2017 to about $1.714 billion in early 2018. However, this positive trend was interrupted by a reversal in early 2019, where the net income turned negative, with a loss of approximately $1.59 billion. Subsequently, the company recovered, returning to positive net income values, rising to around $827 million in 2020, followed by further increases to $1.342 billion and $1.328 billion in 2021 and 2022, respectively. This pattern indicates a volatile earnings performance with a notable setback in 2019 but a steady recovery thereafter.

Net Operating Profit After Taxes (NOPAT) Trend

The net operating profit after taxes mirrored a similar trajectory to net income. It rose from about $1.187 billion in 2017 to $1.636 billion in 2018, before experiencing a substantial downturn to a negative $1.11 billion in 2019. Following this decline, NOPAT rebounded to approximately $1.177 billion in 2020 and continued to improve to $1.687 billion in 2021. In 2022, there was a slight decrease to around $1.622 billion, although levels remained strong relative to the earlier years except for 2019. The NOPAT trend reflects the operational challenges faced in 2019 and subsequent recovery, showcasing operational resilience in the following years.

Insights and Observations

The financial performance over the six-year span reveals a company experiencing cyclical volatility, with 2019 marking a particularly challenging year, featuring declines in both net income and operational profitability into negative territory. The recovery phase post-2019 was marked by restored profitability and an ability to sustain high levels of operating profit, suggesting effective management responses and operational adjustments. The relative stability of net income and NOPAT in the last two periods indicates a stabilization phase, with strong earnings sustained despite minor fluctuations. Overall, the patterns suggest responsiveness to external or internal challenges and a capacity for financial recovery and growth.

Provision for Income Taxes

The provision for income taxes shows considerable fluctuation over the six-year period. It started at a high value of 433,200 thousand US dollars in early 2017, then sharply declined to a negative figure of -10,300 thousand US dollars in early 2018, indicating a possible tax benefit or adjustment during that year. Subsequently, the provision increased again, reaching 281,800 thousand US dollars in early 2019 and maintaining similarly elevated levels in the following years, with values of 271,700, 397,900, and 304,300 thousand US dollars in early 2020, 2021, and 2022 respectively. Overall, the provision exhibits volatility, but generally remains in the positive range, with a notable exception in 2018.

Cash Operating Taxes

Cash operating taxes demonstrate a clear declining trend from 2017 through 2020. Initially, the amount stood at 786,228 thousand US dollars in early 2017 and decreased steadily over the next three years to 664,515, 424,099, and 353,258 thousand US dollars by early 2018, 2019, and 2020 respectively. After 2020, this figure experienced a rebound, increasing to 450,561 thousand US dollars in early 2021, before slightly decreasing again to 411,860 thousand US dollars in early 2022. This suggests a reduction in cash operating tax outflows mid-period, followed by partial recovery in subsequent years.

Total reported debt & leases

The total reported debt and leases show a consistent downward trend from January 28, 2017, to January 30, 2021, decreasing from approximately 12.43 billion US dollars to about 9.64 billion US dollars. This indicates a concerted effort towards debt reduction over this period. However, there is a slight increase in the debt level in the latest period, ending on January 29, 2022, rising to roughly 9.97 billion US dollars.

Shareholders’ equity

Shareholders’ equity exhibits fluctuations over the analyzed periods but generally trends upward. It increased substantially between January 28, 2017, and February 3, 2018, rising from approximately 5.39 billion to 7.18 billion US dollars. This was followed by a decline in the following year to around 5.64 billion US dollars, and then a steady recovery and growth through January 29, 2022, reaching about 7.72 billion US dollars. The overall increase suggests strengthening equity positions over the long term.

Invested capital

Invested capital shows a pattern characterized by an initial increase from January 28, 2017, to February 3, 2018, peaking at approximately 19.85 billion US dollars. Subsequently, there is a decline over the next two years, bottoming out at about 16.99 billion US dollars in February 1, 2020, before a gradual increase resumes, reaching approximately 18.20 billion US dollars by January 29, 2022. This trend suggests a period of contraction followed by renewed investment activities or asset accumulation.

Overall analysis

The data portray a company that has actively managed its capital structure, notably reducing total reported debt over a significant period while recovering from a dip in shareholders’ equity. The invested capital trend aligns with these dynamics, showcasing initial growth, mid-term contraction, and later resurgence. The slight uptick in debt in the most recent reporting period warrants monitoring, although the continuous increase in equity and invested capital indicates a potentially improving financial position.

The financial data indicates fluctuations in economic profit, invested capital, and economic spread ratio over the six annual periods ending in early 2022.

Economic Profit

Economic profit shows a high degree of volatility across the periods. It started with a negative value of -479,861 thousand USD in early 2017, decreased in magnitude to -239,214 thousand USD by early 2018, then plunged significantly to -2,799,488 thousand USD in early 2019. Following this, economic profit improved markedly, reducing negative losses to -408,106 thousand USD in early 2020, further to -91,168 thousand USD in early 2021, before worsening once again to -288,398 thousand USD in early 2022. Overall, economic profit remained negative throughout, which suggests the company did not generate surplus returns over its cost of capital in any given year.

Invested Capital

Invested capital shows an irregular pattern with a peak and subsequent decline followed by recovery. It began at approximately 19.17 billion USD in early 2017, increased slightly to 19.85 billion USD by early 2018, then decreased substantially to 17.01 billion USD in early 2019 and remained relatively stable in 2020 around 16.99 billion USD. Subsequently, invested capital rebounded to nearly 17.69 billion USD in early 2021 and further increased to 18.20 billion USD by early 2022. This indicates fluctuations in the company’s resource base, possibly reflecting changes in asset investments or divestitures.

Economic Spread Ratio

The economic spread ratio, which measures the return on invested capital relative to cost of capital, remained negative throughout all periods, consistent with the persistent negative economic profit. The ratio was -2.5% in early 2017, improved to -1.21% by early 2018, before deteriorating sharply to -16.46% in early 2019. After this steep decline, the spread ratio improved considerably to -2.4% in early 2020, and further to -0.52% in early 2021. In early 2022, the ratio worsened slightly again to -1.58%. These movements reflect fluctuating operational efficiency or profitability relative to invested resources and capital costs, with the company generally underperforming its cost of capital.

Economic Profit

The economic profit experienced significant fluctuations over the observed periods. Initially, there was a negative economic profit of -479,861 thousand US dollars in 2017, which improved substantially in 2018 to -239,214 thousand US dollars. However, 2019 saw a sharp decline to -2,799,488 thousand US dollars, indicating a considerable loss. The subsequent years showed improvements with values of -408,106 thousand in 2020, -91,168 thousand in 2021, but again deteriorated to -288,398 thousand US dollars in 2022. This pattern indicates volatility in generating economic profit, with a notable peak loss in 2019.

Net Sales

Net sales displayed a consistent upward trend throughout the observed periods. Starting from 20,719,200 thousand US dollars in 2017, net sales steadily increased each year, reaching 26,309,800 thousand US dollars by 2022. This reflects a growth in revenue over the six-year span, suggesting expanding business volume or pricing adjustments.

Economic Profit Margin

The economic profit margin remained negative across all years, indicating that the company did not achieve positive economic returns during this time frame. The margin improved from -2.32% in 2017 to -1.08% in 2018, but then deteriorated sharply to -12.27% in 2019, consistent with the massive economic loss noted in that year. From 2020 onwards, the margin showed improvement again, reaching -0.36% in 2021, the least negative value, before slightly worsening to -1.10% in 2022. Overall, this margin trend highlights challenges in profitability despite growing sales.