Dollar Tree Focusing on Retail Fundamentals
Dollar Tree Inc. recently reported financial results for its third quarter ended Nov. 2.
“Our Dollar Tree and Family Dollar merchandising efforts produced tangible results, and our third-quarter sales came in at the high end of our expected range,” noted Mike Creedon, the company's interim CEO, who stepped into the role after Rick Dreiling left Dollar Tree due to health issues.
On a consolidated basis, Q3 net sales grew 3.5% to $7.6 billion for the discount retailer, and adjusted diluted earnings per share (EPS) was $1.12, a 16% increase. Adjusted net income rose 13% to $241 million.
Looking at performance by banner, Dollar Tree segment comp increased 1.8% on a 1.5% increase in traffic and a 0.3% increase in average ticket. This was Dollar Tree's first positive ticket comp since Q4 of 2022. Dollar Tree's Q3 consumable mix was 49.9%, a year-over-year increase of 150 basis points.
Consumable comp was 6.2%, which came on top of an 11.1% comp. “Snacks, beverages and candy were the best-performing categories,” explained Creedon. “Discretionary comp declined 1.8%, reflecting consumers' ongoing focus on needs-based purchases.”
During the quarter, the company converted another 720 Dollar Tree stores to the 3.0 multi-price format, bringing the total number of converted stores to approximately 2,300. “The converted stores produced approximately 30% of Dollar Tree's total net sales in Q3 and continue to produce comps nicely above our portfolio average,” said Creedon.
The company expects to convert an additional 300 to 400 stores to the 3.0 format by the end of Q4.
“This will put us a bit below the 2,800 figure we provided last quarter, but we are taking our time to ensure that each store is ready for conversion before we give it the final green light,” explained Creedon.
The company has also nearly completed the integration of 170 99 Cents Only stores that it purchase back in May. “To date, we've converted and reopened 158 stores as Dollar Trees and should finish up the remaining handful of stores by the end of this month,” said Creedon. “The strong initial sales performance of these stores confirms our original optimism about the quality of these assets and their locations across California and the Southwest.”
For the Family Dollar segment, comp increased 1.9%, with the gain driven almost entirely by traffic. Average ticket was flat after three consecutive quarters of declines. Consumables comp increased 1.3%, which came on top of a 6.2% comp increase last year. Discretionary comp rose 3.7%, which was a 540-basis-point sequential improvement over Q2.
Most importantly, Q3 was Family Dollar's first positive discretionary comp since Q4 2022.
Creedon explained the strategy behind this improvement: “We increased the number of items priced at or below $5. We updated our in-store signage and shelf strips to better communicate our price value image, and we identified additional ways to optimize our planograms to drive sales and space productivity. These initiatives are clearly resonating with our core Family Dollar customer, and we are seeing the positive results at the cash register. We are also pleased to report that Family Dollar's renovation and store conversion program is generating positive results.”
[RELATED: Family Dollar Takes Steps To Sharpen Merchandising]
Meanwhile, the company is still in the midst of its formal review of strategic alternatives for the Family Dollar business segment, which could include a potential sale, spinoff or other disposition of the business.
As a result of its portfolio optimization review, the company has already identified approximately 970 underperforming Family Dollar stores for closure. As of Nov. 2, approximately 670 stores had already shuttered. The company expects to close an additional 25 during the remainder of fiscal 2024.
Looking ahead to Q4, Dollar Tree expects net sales will be in the range of $8.1 billion to $8.3 billion based on low-single-digit comp sales growth for the enterprise and both the Dollar Tree and Family Dollar segments. Adjusted diluted EPS outlook range is expected to be between $2.10 to $2.30.
“At the end of the day, retail fundamentals are the key to unlocking value at Dollar Tree, and I am confident that we have the right team in place to deliver improved merchandising execution and store standards,” said Creedon.
Chesapeake, Va.-based Dollar Tree operates more than 16,000 Dollar Tree, Family Dollar and Dollar Tree Canada stores across 48 states and five Canadian provinces. The company is No. 20 on The PG 100, PG’s 2024 list of the top food and consumables retailers in North America.
