Strong growth hasn't been enough to keep some number-crunching investors from shaking Dollar Tree ( DLTR). The deep-discount chain has gained momentum the last year, its low-priced offerings growing more popular in a softening economy. But as the heat rises in Wall Street's summer of accounting scandal, some people are now turning a watchful eye on the company's books.
Some observers say the Chesapeake, Va., company uses accounting methods that make its numbers look better than they really are. These range from a quirk that allows Dollar Tree to report higher same-store sales to a series of so-called synthetic leases that serve to keep debt off the balance sheet. The latter device, though once widely used in the retail industry, has been abandoned by a number of other chains amid increasing scrutiny in the wake of Enron's collapse. The methods are perfectly legal and acceptable under generally accepted accounting principles, or GAAP, and the company stands by its accounting. But these days, with investors demanding more from companies than the letter of the law, Dollar Tree's bookkeeping threatens to undermine its stock, which has easily outperformed a sinking market throughout 2002. "Investors used to pay for growth," said a hedge fund manager who frequently trades retail stocks but has no position in Dollar Tree. "Now I think investors will pay a premium for disclosure and clean financial statements."