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Dollar Tree details expansion of new store initiatives; updates freight outlook

Dollar Tree
Dollar Tree is following an aggressive store growth strategy.

Dollar Tree is going full speed ahead with two new store initiatives.

The discount retailer will expand  its Dollar Tree Plus initiative, which adds a multi-price merchandise that exceeds Dollar Tree’s $1 price point and is currently in place in abut 340 stores. It expects to have the assortment in place in 500 stores by year-end, expanding it to an additional 1,500 stores in fiscal 2022.

“Our aim to have at least 5,000 Dollar Tree Plus stores by the end of 2024,”  stated Michael Witynski, president and CEO, Dollar Tree. “Many of our new stores will be opened as Dollar Tree Plus stores.”

On average, stores with Dollar Tree Plus are experiencing an overall sales lift of approximately 6%, the company said, with a similar lift to gross profit, improved cash contribution of approximately 13%, and a payback on the investment of less than one year.

In March 2021, the retailer announced its newest store format, the combo store, which leverages the strengths of both banners under one roof.  The company currently has 105 combo stores operating and sees an opportunity for up to 3,000 combo Stores in rural markets alone.  More than 85% of new Family Dollar locations in fiscal 2022 will be combo stores.

“We anticipate 400 new, renovated, or relocated combo stores next year,” said Witynski.” Additionally, we are in the process of validating this concept in other demographic markets.”

In reporting its second-quarter results, Dollar Tree amended the updated freight outlook it gave after its first quarter. The outlook had  assumed that its regular ocean carriers would fulfill only 85% of their contractual commitments and also assumed higher spot market rates. However, the company now projects that its regular carriers will fulfill only 60-65% of their commitments.

Additionally, the spot market rates for ocean freight from China have continued to trend upward from all-time highs, and have increased more than 20% since the company last reported earnings in May. Dollar Tree said it expects continued volatility with respect to the ocean carriers ability to fulfill contractual commitments.

“The Dollar Tree banner is highly sensitive to freight costs, and while the company does not expect these conditions to be permanent, it continues to undertake steps to mitigate the impact from freight and otherwise improve gross merchandise margin,” the retailer stated.

Dollar Tree’s net income totaled $282.4 million, or $1.23 per share, in the quarter ended July 31, up from $261.5 million, or $1.10 per share, in the year-ago period. Analysts had expected earnings per share of $1.01.

Consolidated net sales inched up 1% to $6.34 billion. Analysts were looking for sales of $6.44 billion.

Enterprise same-store sales decreased 1.2% from the year-ago quarter and increased 6.0% on a two-year stacked basis. Dollar Tree same-store sales decreased 0.2%. Same-store sales for Family Dollar decreased 2.1%, cycling the strong 11.6% increase in the prior year’s quarter.

The retailer opened 31 new stores, expanded or relocated 30 stores, and closed 37 stores during the quarter. It also completed 470 renovations to the Family Dollar H2 or combo store formats.

“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,”  stated Witynski.“All three concepts have performed very well and we are significantly accelerating these initiatives in 2022 and beyond.”

[Read More: Dollar Tree hosting hiring event at distribution centers; offering sign-on bonuses]

For the third quarter, Dollar Tree expects net sales in the range of $6.40 billion to $6.52 billion based on low-single-digit same-store sales growth. Earnings per share are expected to be in the range of $0.88 and $0.98. Analysts had forecast sales of $6.43 billion and earnings per share of $1.26.

For the full year, net sales are expected to be in the range of $26.19 billion to $26.44 billion based on a low single-digit same-store sales increase, with earnings per share of  $5.40 to $5.60.

“We are confident in the accelerated expansion of our key initiatives, which will further leverage our brands to deliver long-term value to our shareholders,” Witynski said. “Despite the current global supply chain disruptions and the inflationary pressures, we are more excited than ever about the opportunities ahead of us

Dollar Tree operated 15,865 stores across 48 states and five Canadian provinces as of July 31, 2021. Stores operate under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada.

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