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Dollar Tree’s Expanded Assortment Strategy Helps Boost Q1 Sales

Consumers respond positively to the changes retailer is making
Marian Zboraj, Progressive Grocer
Dollar Tree
Dollar Tree experienced an uptick in candy and snack purchases during its first quarter.

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.

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Results for the company’s latest quarter are reported on a continuing-operations basis and reflect the Family Dollar segment as discontinued operations. Continuing operations reflect the results of the Dollar Tree segment and corporate, support and other.

On March 25, the company entered into a definitive agreement to sell the Family Dollar business to Brigade Capital and Macellum Capital Management. Dollar Tree has received U. S. regulatory approval for the transaction, and the deal remains on track for an early- summer close. Last month, it was revealed that Duncan MacNaughton would step into the role of chairman and CEO for Family Dollar.

Meanwhile, Dollar Tree provided updated full-year guidance, projecting net sales between $18.5 billion and $19.1 billion and comparable-store sales growth of 3%-5%. The company anticipates a challenging second quarter because of higher tariffs and other costs. EPS is expected to decline by 45%-50% year over year. 

Because Dollar Tree will bear the full year of the costs to support Family Dollar, but only expects to receive offsetting reimbursement income in the second half of the year, the company’s full-year EPS will be negatively affected by approximately 30 cents to 35 cents, with that impact concentrated in the first two quarters of the fiscal year.

Dollar Tree plans to host an Investor Day in New York on Oct. 15.

Chesapeake, Va.-based Dollar Tree Inc. operated 16,607 stores across 48 states and five Canadian provinces as of May 3. Stores operate under the brands of Dollar Tree, Family Dollar and Dollar Tree Canada. The company is No. 32 on The PG 100, Progressive Grocer’s 2025 list of the top food and consumables retailers in North America

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