Dollar Tree’s Expanded Assortment Strategy Helps Boost Q1 Sales

Dollar Tree Inc. delivered increases across every key metric in its first quarter, ended May 3, and results exceeded its outlook. 

The discounter reported that net sales increased 11.3% to $4.6 billion. Same-store net sales rose 5.4%, driven by a 2.5% uptick in traffic and a 2.8% increase in average ticket.

“Our expanded assortment strategy is having the intended impact of driving incremental traffic, ticket and comp,” said Dollar Tree CEO Mike Creedon during the company’s earnings call. 

Q1 marked the first anniversary of the company’s 3.0 multi-price format.

“Demonstrating the broader appeal of our expanded assortment, the 3.0 portfolio continues to outperform our other store formats by providing a nice boost to traffic, ticket, comp and discretionary mix,” said Creedon. “During the quarter, we completed approximately 503 conversions, and we are still on track to have about half the store base converted by year end.”

[RELATED: Dollar Tree Surpasses 9,000 Stores Across North America]

Gross profit for the company increased 11.7% to $1.6 billion in Q1, and gross margin expanded 20 basis points to 35.6%. The expansion in gross margin was driven primarily by lower freight, improved mark-on and lower occupancy costs due to sales leverage, partly offset by increased distribution, shrink and markdown costs.

In Q1, selling, general and administrative expenses increased 100 basis points to 27.3% of total revenue. 

Operating income inched up 0.6% to $384.1 million, and operating margin contracted 90 basis points to 8.3%. Adjusted operating income rose 1.4% to $387.8 million, and adjusted operating margin declined 80 basis points to 8.4%.

Income from continuing operations was $313.5 million, and diluted earnings per share (EPS) from continuing operations was $1.47. On an adjusted basis, which doesn’t include non-operating insurance gains or strategic review costs, net income was $269.7 million, and diluted EPS was $1.26.

“Our gains in dollar and unit market share accelerated in Q1,” said Creedon. “In fact, we gained twice as much unit share in Q1 as we did in Q4. These gains are driven by strong trends in immediate consumption purchases like candy, snacks and beverages, as well as key discretionary categories.”

Higher-income customers were also a significant growth driver in Q1. "In particular, we saw meaningful traffic increase from customers with household incomes of more than $100,000, demonstrating Dollar Tree’s broad appeal," noted Creedon.