Dollar Tree Q3 Results Within Expectations

Dollar Tree Inc. reported a 5.4% increase in net sales to $7.3 billion for the third quarter ended Oct. 28. This was driven by comp growth of 3.9%, with traffic up 4.7% and average ticket down a little less than 1%. Operating income came in at $301.7 million, which resulted in EPS of 97 cents.

For the Dollar Tree banner, the comp was up 5.4%, with traffic increasing by 7% and average ticket decreasing by 1.5%. Consumables comp was up 11.1%, and discretionary was up 1.1%. 

“We believe the consumables strength at Dollar Tree this quarter, as well as our strong multiyear discretionary comp, shows customers are embracing our compelling value proposition in this strained economic environment,” said Chairman and CEO Richard Dreiling during the company’s third-quarter earnings call. 

For the Family Dollar banner, the comp was up 2%, with traffic increasing 1.4% and average ticket increasing 0.7%. Consumable comp was especially strong at 6.2%, while discretionary was down at 12.5%, particularly in categories like home decor, electronics and toys.

“In our view, these trends underscore how lower-income households are under increasing financial stress and directing their spending towards needs-based goods,” said Dreiling.

The company’s gross profit increased 4.9% to $2.17 billion and gross margin declined 20 basis points to 29.7%. The gross margin decline was driven by unfavorable sales mix, elevated shrink, product cost inflation, a product recall, and wage investments in distribution center payroll, partly offset by lower freight.

“Our third-quarter results were within our expectations thanks to continued execution across all aspects of our business transformation,” said Dreiling. “In a challenging environment, our performance was among the best in retail as we continue to grow traffic, unit, and sales per square foot.”

However, the company has initiated a comprehensive review of its Family Dollar portfolio to address stores that are not aligned with the company's transformative vision.

“We are pleased with our top-line performance in the third quarter. Overall, we generated 5% more gross profit dollars than last year as consumers continue to respond positively to our growth initiatives,” added CFO Jeff Davis.

The company opened 197 new stores in its third quarter. It added $3, $4 and $5 frozen and refrigerated items to 920 additional Dollar Tree stores. Dollar Tree frozen and refrigerated assortments are now in 6,500 stores, significantly ahead of its original year-end target of 5,500.

Dollar Tree also reported its year-to-date results. Consolidated net sales increased 6.5% to $21.9 billion. Enterprise same-store net sales rose 5.2%. Dollar Tree same-store net sales increased 5.6%, driven by a 7.5% boost in traffic, partly offset by a 1.8% decline in average ticket. Family Dollar’s 4.8% same-store net sales increase comprised a 3.0% rise in traffic along with a 1.7% increase in average ticket.

Gross profit was flat at $6.5 billion, and gross margin declined 190 basis points to 29.8%. Operating income was $1.0 billion, and operating income margin was 4.6%. Net income was $711.4 million, and diluted EPS was $3.23.

Consolidated net sales for full-year fiscal 2023 are now expected to range from $30.5 billion to $30.7 billion. The company expects to deliver a mid-single-digit comparable-store net sales increase for the year, comprising a mid-single-digit increase in the Dollar Tree segment and a low-single-digit increase in the Family Dollar segment. Selling square footage is expected to grow by 3.0% to 3.5% for the year. Diluted EPS is expected to range from $5.81 to $6.01.

“Our full-year 2023 diluted EPS outlook incorporates our third-quarter results and fourth-quarter expectations that are consistent with those contained in our previous earnings update. Our current outlook takes into consideration several factors, including continuing strength at the Dollar Tree banner, incremental freight savings, softer demand from low-income households, and a continuation of the shrink and sales mix headwinds we have seen throughout the year. It excludes any potential impact from the Family Dollar portfolio review,” Davis added.

Chesapeake, Va.-based Dollar Tree operates 16,476 Dollar Tree and Family Dollar stores across 48 states and five Canadian provinces as of July 29. The company is No. 21 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.