Dollar Tree in ‘very good start’ to holiday amid strong Q3; to renovate 1,250 stores
Dollar Tree reported third-quarter sales and earnings that beat estimates and sounded an upbeat note about the holiday season.
“We are just over three weeks into our important fourth quarter and we are off to a very good start, with same-store sales at both banners currently tracking above reported third-quarter levels,” said Mike Witynski, president and CEO, Dollar Tree.
The discounter’s net sales increased 7.5% to $6.177 billion in the quarter ended Oct. 31, beating estimates of $6.129 billion.
Total same-store sales increased 5.1%. Same-store sales for Family Dollar increased 6.4%. Dollar Tree same-store sales increased 4.0%.
Net income totaled $330.0 million with earnings per share of $1.39, compared to $1.08 per share in the year-ago period. Analysts had forecast earnings per share of $1.15.
“I am incredibly proud of our team’s efforts to continue serving customers effectively, while driving operational improvements in both banners through this dynamic retail environment,” stated Witynski. “Dollar Tree delivered its strongest same-store sales performance in the past ten quarters, along with a 50 basis point improvement in operating margin. At Family Dollar, the improvement continues as the team delivered a 6.4% comparable store sales increase, a 230 basis point improvement in gross profit margin and a 250 basis point improvement in operating margin.”
Dollar Tree said that the “H2” store renovation program at Family Dollar continues to be a key component of the momentum in the turnaround. The H2 stores, on average, continue to comp at a 10%-plus lift compared to non-renovated stores in their first year, according to the company.
At the end of the quarter, the company has approximately 2,240 Family Dollar stores in the new format. It plans to renovate approximately 1,250 Family Dollar stores in 2021.
Additionally, in mid-2019, the retailer began testing a multi-price merchandise initiative, Dollar Tree Plus!, in 100 Dollar Tree stores in southwestern markets. The company will expand the program to 500 stores beginning in the spring of 2021. Based on the pilot learnings, the program has been modified with the merchandise assortment moving from consumable products to primarily discretionary items, focusing on the $1, $3 and $5 price points, and increasing the offerings above the $1 price point.
Dollar Tree ended the quarter with $1.12 billion in cash on its balance sheet. It has paid down the remaining $500 million on its revolving line of credit during the third quarter. Additionally, the retailer plans to pay off a $300 million legacy Family Dollar note due in February 2021.
Our focus will continue to be on opening new stores, refining our store formats and upgrading our assortments to drive improved store productivity, increasing operating efficiencies, generating free cash flow and buying back shares,” Witynski said. “These efforts are designed to deliver continued value to our long-term shareholders.”
Dollar Tree operated 15,606 stores across 48 states and five Canadian provinces as of Oct. 31, under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada.