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Dollar Tree’s Q2 Highlights Bright Spots Amid Some Concerns

Discount retailer cuts full-year profit but reports areas of improvement and success with Combo Store format
Lynn Petrak, Progressive Grocer
Dollar Tree’s Q2 Highlights Bright Spots Amid Some Concerns
Dollar Tree released its Q2 report, highlighting bright spots for growth tempered by freight cost concerns.

In what president and CEO Michael Witynski called a “dynamic environment,” Dollar Tree Inc. reported a 1% uptick in consolidated net sales from the second quarter of 2020 to the second quarter of its fiscal 2021 year and an 11.8% year-over-year gain in its earnings per share (EPS).

According to the newly-released Q2 earnings report that recapped performance for the fiscal quarter ending July 31, the company fell short of some Wall Street expectations but posted improvements in operating margin and earnings. Consolidated net sales reached $6.34 billion for the quarter and, although enterprise-wide same store sales dipped 1.2% on a constant currency basis, were up 6% compared to the pre-pandemic 2019 second quarter. Sales at the Dollar Tree banner were more or less flat, dipping 0.2% in that same time frame.

From a margin perspective, Dollar Tree’s enterprise operating margin grew 30 basis points to 6.3%; a decrease in gross margin was attributed in part to higher freight costs. Also during the second quarter, the company bought back more than 7 million shares for $700 million and reported that it has $1.45 million remaining on its share repurchase authorization.

Witynski lauded his team’s efforts in reacting to a marketplace in flux with inflationary pressures and supply chain challenges, and cited accomplishments across the organization, such as the opening of 131 new stores and the expansion or relocation of 30 stores. “We continued to see strong performance on the discretionary side of the business, and our key initiatives, including H2, Dollar Tree Plus and the new Combo Stores, are delivering compelling results. All three concepts have performed very well and we are significantly accelerating these initiatives in 2022 and beyond,” he said.

Looking ahead, Dollar Tree projects consolidated net sales for the third quarter of FY2021 to range from $6.4 billion to $6.52 billion and diluted EPS to range from $5.40 to $5.60, based on low single-digit same-stores sales growth. The company also estimates that higher transportation costs will take a toll on its full-year profit outlook.

Also heading into the back half of its fiscal year, Dollar Tree plans to accelerate the Dollar Tree Plus initiative that adds a multi-price assortment to its offerings and to continue the rollout of its Combo Store format with Dollar Tree and Family Dollar banners under one roof. “Demonstrating our great confidence in Combo Stores as a key strategic format, more than 85% of our new Family Dollar stores will be Combo Stores in fiscal 2022. We anticipate 400 new, renovated, or relocated Combo Stores next year. Additionally, we are in the process of validating this concept in other demographic markets,” Witynski remarked.

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

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