Dollar Tree to Capitalize on Q4 Sales Momentum
Dollar Tree Inc. has reported financial results for its fourth quarter ended Feb. 1. With the $1 billion sale of its Family Dollar business, results are reported on a continuing-operations basis and reflect the Family Dollar segment as discontinued operations.
Net sales rose slightly by 0.7% to $5.0 billion for the company. Same-store net sales increased by 2.0%, driven by a 0.7% increase in traffic and 1.3% growth in average ticket.
Gross profit declined by 2.8% to $1.9 billion, and gross margin contracted by130 basis points to 37.6%. The decline in gross margin expansion was driven primarily by the loss of leverage from the extra week of sales in 2023, lower initial mark-on, and higher shrink, distribution and markdown cost, partly offset by lower freight.
Selling, general and administrative (SG&A) expenses increased by 260 basis points to 27.0% of total revenue. This was due to software impairments and related contract termination costs in connection with the decision to sell the Family Dollar business, and higher expenses across depreciation, stock compensation, professional fees, utilities costs and the extra week of sales in 2023. The increases were partly offset by lower general liability claim adjustments.
On an adjusted basis, SG&A expenses increased by 100 basis points to 25.1% of total revenue.
Operating income dropped by 26.5% to $533.6 million, and operating margin contracted by 390 basis points to 10.7%. Adjusted operating income decreased by 15.2% to $627.8 million, and adjusted operating margin contracted by 230 basis points to 12.6%.
Income from continuing operations was $400.2 million, and diluted earnings per share from continuing operations was $1.86. Adjusted net income was $454.8 million, and adjusted diluted EPS was $2.11.
Meanwhile, for fiscal year 2024, net sales grew by 4.7% to $17.6 billion. Dollar Tree’s same-store sales increased by 1.8%, driven by a 1.6% uptick in traffic and a 0.1% bump in average ticket.
Gross profit rose by 4.5% to $6.3 billion, and gross margin was flat at 35.8%.
SG&A expenses were 27.5% of total revenue, compared with 25.3% in the year-ago period. On a non-GAAP basis, SG&A expenses were 26.9% of total revenue, compared with 25.2%.
Operating income fell by 17.6% to $1.5 billion, and operating income margin decreased by 230 basis points to 8.3%. Adjusted operating income fell by 12.7% to $1.6 billion and adjusted operating income margin declined by 180 basis points to 8.9%.
Income from continuing operations was $1.0 billion, and diluted earnings per share from continuing operations was $4.83. Adjusted income from continuing operations was $1.1 billion, and adjusted diluted earnings per share (EPS) from continuing operations was $5.10.
The company finished FY2024 with approximately 2,900 Dollar Tree 3.0 multi-price format stores, encompassing 2,600 conversions and 300 new stores.
The 3.0 stores are new or converted stores that offer expanded a multi-price assortment throughout the store. Other formats include 2.0 locations, which have a smaller multi-price assortment concentrated in a single aisle called The Valley, and 1.0 stores, where more than 95% of items sell at a $1.25 price point.
“In the fourth quarter, our team was focused on successfully closing out the year, bringing the strategic review to a favorable conclusion and setting Dollar Tree on a path to realize its full potential to create long-term value for our associates, customers and shareholders,” said CEO Mike Creedon. “We finished 2024 on a high note, with strong execution at Dollar Tree as growing customer acceptance of our expanded assortment drove sales momentum. With the sale of Family Dollar set to close later this year, we will be able to fully dedicate ourselves to Dollar Tree’s long-term growth, profitability and returns on capital.”
Guidance
Looking ahead, Dollar Tree expects net sales from continuing operations for the first quarter will range from $4.5 billion to $4.6 billion, based on comparable-store net sales growth in the range of 3% to 5%.
Adjusted diluted EPS for the first quarter is estimated to be in the range of $1.10 to $1.25.
The company expects its full-year fiscal 2025 net sales from continuing operations to be in the range of $18.5 billion to $19.1 billion, based on comparable-store net sales growth in the range of 3% to 5%. Adjusted diluted EPS from continuing operations is anticipated to range from $5.00 to $5.50.
“Dollar Tree and Family Dollar are two different businesses with limited synergies, and each is at a very different stage of its journey,” added Creighton during the company earnings call. “Separating them will enable each banner to be led and managed by a dedicated team that can focus exclusively on that banner’s distinct needs and on realizing each banner’s full potential. Separating will also enable investors to own a business they value more without also having to own a business they value less or that may not fit in their investment profile. It should also make it easier for the market to properly value each business.”
Chesapeake, Va.-based Dollar Tree operated 16,500 stores across 48 states and five Canadian provinces as of Feb. 1. Stores include the brands of Dollar Tree, Family Dollar and Dollar Tree Canada. The company is No. 20 on The PG 100, Progressice Grocer’s 2024 list of the top food and consumables retailers in North America.
