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Dollar Tree Doing 150 More Family Dollar H2 Store Remodels in FY 2019

Dollar Tree Doing 150 More Family Dollar H2 Store Remodels in FY 2019
During its fiscal 2019, Dollar Tree to planning to convert 150 more Family Dollar stores to the H2 format featuring more freezer and cooler doors

Dollar Tree Inc. is raising the number of new-model Family Dollar H2 store renovations during its fiscal year 2019, citing the success of the format, which, among other features, has more freezer and cooler doors with a broader selection of products. With the added remodels, the company aims to have 1,150 H2 stores up and running in that time frame.

“I am very pleased with the traction and momentum we are seeing in the Family Dollar business,” noted Gary Philbin, the company’s president and CEO. “The team’s efforts to improve the consistency of execution across the store base and our acceleration of initiatives to optimize the real estate portfolio are paying off. We are increasing our planned Family Dollar H2 renovations for fiscal 2019 by 150 stores, most of which will occur in the third quarter.”

The plans were revealed as the company posted a consolidated net sales increase of 3.9% to $5.74 billion for its fiscal 2019 second quarter ended Aug. 2, from $5.53 billion in the year-ago period. The retailer’s enterprise same-store sales rose 2.4%, with same-store sales for the Dollar Tree segment growing 2.4% on a constant currency basis (or 2.3% when adjusted to include the impact of Canadian currency fluctuations), while same-store sales for the Family Dollar segment were up 2.4%.

Gross profit was $1.65 billion in the quarter, versus $1.66 billion last year. As a percentage of sales, gross margin was 28.7% of sales, compared with 30.1% of sales in the year-ago. The company attributed this decline to higher freight costs for both segments, along with markdowns and shrink in the Family Dollar segment.

Q2 2019 net income was $180.3 million, and GAAP diluted earnings per share (EPS) were 76 cents. From $1.15 in the prior-year quarter.

“The turnaround of the Family Dollar business continues to gain momentum,” said Philbin. “Family Dollar’s same-store sales increase of 2.4% was the third consecutive quarter of sequential acceleration and represented a 160-basis-point improvement in the two-year stacked comp. And, despite sales headwinds created by the global helium shortage, the Dollar Tree segment delivered a same-store sales increase of 2.4%, while cycling a strong 3.7% increase from the prior year’s quarter. Dollar Tree has now delivered 46 consecutive quarters of positive same-store sales, and eight consecutive quarters with two-year stacked comps exceeding 6%. I am proud of the team’s accomplishments. During the quarter, we successfully consolidated our store support centers and, as planned, closed 296 Family Dollar stores as part of our store optimization efforts. Additionally, we completed 542 Family Dollar renovations into the H2 format.”

The retailer also opened 150 new stores; expanded or relocated 19 stores; closed nine Dollar Tree stores; opened 106 Dollar Tree stores that were converted from the Family Dollar banner; added freezers and coolers at 210 Dollar Tree stores, bringing its total number of stores under that banner with freezers and coolers to 5,970; and completed 275 Dollar Tree Snack Zones.

Regarding the store support center consolidation, he observed: “One workspace should materially enhance alignment, communication and efficiency, as well as our ability to support stores more effectively. Our focus continues to be to grow and improve our business to deliver increased value to long-term shareholders.”

For the first six months of fiscal 2019, the company’s consolidated net sales grew 4.2% to $11.55 billion, from $11.08 billion in the same period last year. Enterprise same-store sales rose 2.3% on a constant currency basis (or 2.2% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for the Dollar Tree segment went up 2.4%, while same-store sales for Family Dollar climbed 2.1%.

Gross profit for the first six months increased $12.2 million to $3.38 billion, and as a percentage of sales, gross margin was 29.2%, versus 30.4% in the year-ago period. Net income increased 3.2% to $448.2 million from last year, while GAAP diluted EPS rose 3.3% to $1.88, compared with $1.82 last year.

The company also updated its full-year outlook to consolidated net sales ranging from $23.57 billion to $23.79 billion, from its previously expected range of $23.51 billion to $23.83 billion. The estimate is based on a low single-digit increase in same-store sales and 1.3% selling square footage growth. The company also now anticipates net income per diluted share for full-year fiscal 2019 will range between $4.90 and $5.11. Its updated outlook does not include recently announced tariff increases on $300 billion in Chinese goods, as the company noted that it was working to mitigate these costs by negotiating price concessions, cancelling orders, modifying specifications, evolving product mix, and diversifying its vendors.

Chesapeake, Va.-based Dollar Tree has 15,115 stores in 48 states and five Canadian provinces, with locations operating under the Dollar Tree, Family Dollar and Dollar Tree Canada banners.

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