Dollar Tree reported higher sales and traffic during the second quarter, but profits dipped amid macro and structural challenges.
Traffic is up at Dollar Tree and Family Dollar stores, as consumers flock to discounted consumables, but there are some recent speed bumps on the path to the retailers' corporate growth. This week, Dollar Tree, Inc. reported a year-over-year (YoY) decline in earnings and agreed to settle for $1.35 million with the U.S. Labor Department’s Occupational Safety and Health Administration (OSHA).
First, on the topic of financial performance, Dollar Tree revealed a 43.1% YOY drop in operating income for the quarter ending July 29, with operating income coming in at $287.7 million during that time. A decline in gross margins follows the prior year’s margin benefit stemming from the 2022 move to a $1.25 price point at Dollar Tree.
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Although the Q2 earnings slide was notable, the decrease was less steep than many Wall Street analysts had anticipated. In an earnings call, Executive Chairman and CEO Rick Dreiling also put the second quarter performance into context, noting that consolidated net sales rose 8.2%, enterprise same store sales increased 6.9% and store visits were up 3% at Family Dollar and 10% at Dollar Tree.
“Retail is all about growing units, growing transactions and growing sales per square foot – when they move in the right direction, everything else follows. I am pleased to report that all three are heading in the right direction for us,” Dreiling said during the call.
While Dollar Tree pursues the transformation the company outlined earlier this year, organic growth in consumables, led by price-conscious consumers, is buttressing some of the margin pressure. “The food category is disproportionately driving sales momentum across the value retail landscape and our food business is especially well positioned in this environment,” Dreiling reported.
As food and other consumables become a more pivotal part of the business, he also pointed to the success of private brands at Dollar Tree and Family Dollar. “This year, we launched 125 private brand items, which we will further accelerate in the next quarter,” Dreiling said, adding that private brand unit sales grew 4% during the second quarter and private brand comps jumped 15% in that period.
To close the profitability gap during the rest of the fiscal year and beyond, Dreiling noted that the company is working at a faster pace to add new stores and expand assortments, among other tactics. In its Q2 report, the company updated its guidance for the rest of the fiscal year, projecting earnings to come in between $5.78 and $6.08 per share and enterprise sales to land between $30.6 billion and $30.9 billion.
Meanwhile, Dollar Tree also agreed to terms with OSHA this week. In addition to paying north of $1 million in penalties, Dollar Tree will conduct a comprehensive assessment of the root causes behind the violations found at multiple stores. The company will also maintain a 24-hour hotline to receive safety complaints and establish a tracking system to ensure that complaints are addressed and will meet quarterly with OSHA to discuss progress.
“We are implementing substantial safety policies, procedures, and training, all intended to safeguard the wellbeing of our associates," Dollar Tree COO Mike Creedon said in a statement following OSHA’s announcement. "We appreciate the opportunity to engage with OSHA on our safety initiatives as we move forward, seeking to establish our position as a leading retailer in workplace safety."
Chesapeake, Va.-based Dollar Tree operated 16,419 stores across 48 states and five Canadian provinces as of April 29. The company is No. 21 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.