Dollar Tree Reports $1.7B Net Loss in Q4
Dollar Tree Inc. took a massive loss in its fourth quarter ended Feb. 3. The company reported a net loss of $1.71 billion.
In Q4 of FY2023, Dollar Tree generated net sales of $8.6 billion, which were up 12% year over year and right on schedule, according to The Motley Fool. However, the company swung to its massive aforementioned loss because it recognized that it had too many underperforming locations. Following a store portfolio optimization review, Dollar Tree recently revealed that it would close approximately 600 Family Dollar stores in the first half of FY2024. Family Dollar’s same-store net sales decreased 1.2% in Q4.
Approximately 370 Family Dollar and 30 Dollar Tree stores will also close over the next several years at the end of each store’s current lease term.
“We believe rationalizing these unprofitable locations will help to unlock meaningful value at the enterprise level,” said Chairman and CEO Rick Dreiling during the company’s earnings call.
It's not all bad news for the discount retail chain, as the Dollar Tree banner finished its FY2023 strong.
Dollar Tree segment comps were up 6.3% on 7.1% more traffic and a 0.7% decrease in ticket. Traffic and ticket both improved sequentially. This strong Q4 comp came on top of an 8.7% comp last year. Dollar Tree's consumable comp was up 10.8% and its discretionary comp was up 3.1%, a 200-basis-point sequential increase from Q3 and an impressive accomplishment given the general weakness in discretionary demand across retail.
“Dollar Tree added 3.4 million new customers in 2023, mostly from households earning over $125,000 a year,” mentioned Dreiling. “We attribute Dollar Tree's exceptional performance to the range of initiatives we have been implementing.”
One of the key initiatives at Dollar Tree is its multi-price point strategy, known as More Choices. The underlying premise is that the company can provide a more relevant assortment to customers if it can offer items at a variety of price points. Dollar Tree has substantially completed the rollout of $3, $4 and $5 frozen and refrigerated items, which are now available in more than 6,500 stores.
“Today, we typically offer multi-price frozen product in three coolers within our usual 10 cooler bank,” said Dreiling. “Over time, that will evolve [to] eight out of 10 as we expand the assortment.”
Earnings for FY2023 were also encouraging for the company. Dollar Tree experienced growth in sales per square foot, transactions and units – the benchmarks that the company considers most important in retail.
Selling square footage increased 3.6%, which was ahead of target. The company’s consolidated net sales climbed 8.0% to $30.6 billion. Enterprise same-store net sales increased 4.6%. Dollar Tree same-store net sales rose 5.8%, driven by a 7.4% increase in traffic, partly offset by a 1.5% decline in average ticket. Family Dollar’s 3.2% same-store net sales increase comprised a 2.5% increase in traffic, along with a 0.7% increase in average ticket.
For its FY2024 outlook, Dollar Tree expects net sales in the range of $31.0 billion to $32.0 billion.
“We are introducing an initial fiscal 2024 EPS outlook of $6.70 to $7.30. While we expect current shrink and mix levels to be a headwind in the first half of the year, we are expecting to benefit from favorable freight rates and moderating headwinds from reduced SNAP benefits throughout the year,” explained CFO Jeff Davis. “We are making solid progress on our key growth initiatives and are encouraged by the early results of our business transformation efforts.”
“We are especially excited about the next phase of our multi-price expansion strategy,” added Dreiling. “Dollar Tree's Chief Merchandising Officer Rick McNeely and his team are continuously working on new ways to deliver value while expanding our assortment across a wider range of price points. This expanded assortment will offer Dollar Tree shoppers a wider range of choices across a variety of categories, including food and snacks, beverages, pet care, personal care, and more."
This year, across 3,000 stores, Dollar Tree expects to expand its multi-price assortment by more than 300 items at price points ranging from $1.50 to $7. But even as its multi-price assortment expands over time, the chairman and CEO stresses that the vast majority of the items sold in Dollar Tree stores will remain at the entry-level fixed price point.
“Over time, you will also see us fully integrate multi-price merchandise more into our stores so our shoppers will find $5 bags of dog food next to our traditional $1.25 pet treats and toys, and our $3 bags of candy will be found in the candy aisle,” said Dreiling. “This is the next exciting chapter of the Dollar Tree value story: new items, more choices and more savings.”
Dreiling also mentioned that the company is taking decisive action to improve profitability and unlock value at Family Dollar. He pointed out that the consumable mix is currently the best it has been at the banner.
The company opened 641 new stores in FY2023. It expects that the vast majority of new store openings in FY2024 will be under the Dollar Tree banner.
Chesapeake, Va.-based Dollar Tree operates 16,622 Dollar Tree, Family Dollar and Dollar Tree Canada stores across 48 states and five Canadian provinces as of Oct. 28, 2023. The company is No. 21 on The PG 100, PG’s 2023 list of the top food and consumables retailers in North America.
