Shrink, sales mix bite into Dollar Tree profits as sales rise in Q2
For the second quarter in a row, strong sales at Dollar Tree were overshadowed by continuing trends of elevated shrink and consumers shifting to consumable purchases.
The extreme discount retailer reported second quarter net income of $200.4 million, a substantial 44% dip from $359.9 million in the second quarter of fiscal 2022. Earnings per share (EPS) fell to $0.91 from $1.61.
Company executives attributed declining profits to shrink and an unfavorable sales mix, issues which also negatively impacted the company’s performance in the first quarter of fiscal 2023. In addition, selling, general and administrative expenses rose year-over-year.
Topline performance fared better., net sales rose 8% to $7.32 billion from $6.76. billion. Consolidated net sales increased 8.2% to $7.32 billion. Enterprise same-store sales increased 6.9%. Dollar Tree same-store sales increased 7.8%, driven by a 9.6% increase in traffic, partially offset by a 1.6% decline in average ticket. The company’s Family Dollar’ banner’s 5.8% same-store sales increase was comprised of a 3.4% increase in traffic, along with a 2.3% increase in average ticket.
Additional Q2 highlights
- Opened 118 new stores.
- Expanded multi-price Plus offering to 715 additional Dollar Tree stores.
- Added $3, $4, and $5 frozen and refrigerated items to 1,645 additional Dollar Tree stores.
- Completed 276 Family Dollar store renovation projects.
Q3 and full-year guidance
For the third quarter of fiscal 2023, the company expects consolidated net sales to range from $7.3 billion to $7.5 billion, based on a mid-single-digit increase in same-store sales for the enterprise, and for the Dollar Tree and Family Dollar segments. Diluted EPS for the quarter is estimated to be in the range of $0.94 to $1.04.
Consolidated net sales for full-year fiscal 2023 are now expected to range from $30.6 billion to $30.9 billion. The company expects to deliver a mid-single-digit comparable store sales increase for the year, comprised of a mid-single-digit increase in the Dollar Tree segment and a mid-single-digit increase in the Family Dollar segment.
Selling square footage is expected to grow by 3% to 3.5% for the year, with new store growth back-end weighted. Diluted EPS is expected to range from $5.78 to $6.08, including the $0.12 charge for the legal reserve taken in the first quarter and the impact of the 53rd week in fiscal 2023.
“At our June investor conference, we shared the details of our strategy to transform the company and unlock the true value of our business, and our second quarter results show us making solid progress against these objectives,” said Rick Dreiling, chairman and CEO, Dollar Tree. “Both the Dollar Tree and Family Dollar segments reported strong same-store sales trends, driven by increased traffic and accelerated market share gains. We are delivering on our strategy through the dedication of our 200,000-plus associates who are focused on providing an exceptional experience for our customers.”
“In the second quarter we continued to generate strong top-line results across both segments,” said Jeff Davis, CFO, Dollar Tree. “While factors like sales mix and elevated shrink continue to pressure margins, we generated a year-over-year increase in gross profit dollars. We are pleased with the progress of our transformation to date and remain confident in our ability to deliver our growth objective of $10 or more of diluted EPS by 2026.”
Dollar Tree operated 16,476 stores across 48 U.S. states and five Canadian provinces as of July 29, 2023. Stores operate under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada.