Dollar Tree to Expand Consumables Assortment
Dollar Tree's new higher price point of $1.25 on most items will allow the retailer to expand its consumables assortment.
In a third quarter earnings call with analysts, CEO Michael A. Witynski said the company will be "reintroducing many customer favorites and key traffic-driving domestic and consumable products that Dollar Tree had previously discontinued due to the constraints of a $1 price point."
In September, Dollar Tree announced that it would be increasing the price of most products to $1.25 from $1. The increase, which will be fully rolled out by the first quarter, will also allow it to return to the retailer's historical gross margin range of 35% to 36% next year, the company says.
"The new price point will also enable us to mitigate the historically high merchandising cost increases, including freight and distribution costs as well as higher operating costs such as wage increases. Our teams are focused on speed, execution and customer research and our shoppers are responding favorably. When surveyed the majority of our customers indicated they were already aware of the previously-announced new price point and not surprisingly, many have also indicated they are seeing price increases across the market and that Dollar Tree is still providing the products they need at undeniable value," Witynski said during the earnings call.
For the third quarter ended Oct. 30, Dollar Tree had consolidated net sales increase 3.9% to $6.42 billion. Overall same store sales increased 1.6%; Family Dollar comps increased 2.7%; and Dollar Tree comps were +0.6%. Net income for the company fell to $216.8 million, or 96 cents per share, in the quarter from $330.0 million, or $1.39 per share, a year earlier.
The Dollar Tree segment delivered a comp sales increase of 60 basis points against its toughest quarterly comp in nearly three years. On a two-year comp stack basis, this was a sequential improvement of 170 basis points from the prior quarter. Consumables were impacted by assortment constraints and past dues, the company said.
"Our $3 and $5 Plus assortment continues to resonate well with our shoppers as we had tremendous sell-through on our Halloween merchandise and fall decor," Witynski said. "And for the year our multi-price point merchandise will exceed our sales plan and we will end this fiscal year with Dollar Tree Plus in nearly 600 stores, exceeding our previous target of 500 stores by the end of the year."
Family Dollar delivered a positive 2.7% comp against the 6.4% increase a year ago. This represented the third consecutive quarter that Family Dollar two-year comp stack has exceeded 9%. The consumable side of the business comped over 3% while discretionary was slightly negative as the retailer cycled stimulus dollars from the prior year.
Comps of both banners were driven by an increase in average ticket, partially offset by a decline in transaction count. The last month of the quarter, October, represented the strongest comp for both banners.
Witynski said the company experienced a strong finish to the third quarter "as shoppers are increasingly focused on value in this inflationary environment."
During the quarter, however, freight costs were significantly higher than expected, he said.
"Freight and supply chain disruptions, of course, continue to be our biggest challenge in the near term by far and the impact will continue for a while. But this challenge is transitory. As we detailed last quarter, our team continues to take robust action to mitigate the impact of freight costs and supply chain disruptions. We believe that based on the steps that we have taken, we will benefit meaningfully as these challenges abate," Witynski said.
The company opened 125 new stores, expanded or relocated 34 stores, and closed 23 stores. Additionally, the company completed 450 renovations to the Family Dollar H2 or Combo Store formats. Retail selling square footage at quarter-end was approximately 127.9 million square feet.
“Lifting the one-dollar constraint represents a monumental step for our organization and we are enthusiastic about the opportunity to meaningfully improve our shoppers’ experience and unlock value for our stakeholders,” Witynski added. “Guided by Dollar Tree’s same founding principles, we will be relentless in our commitment to offer our customers the best value possible.”
In October, the company announced an expanded partnership with Instacart to now include same-day delivery from nearly 7,000 Dollar Tree stores. Nearly 100 million U.S. households now have delivery options from 13,000 Dollar Tree locations.
"We are very pleased with the initial results from the latest expansion," Witynski said.
Chesapeake, Va.-based Dollar Tree, which operates more than 15,700 stores across 48 states and five Canadian provinces, including stores operating under the Family Dollar banner, is No. 30 on The PG 100, Progressive Grocer’s 2021 list of the top food and consumables retailers in North America.
