Dollar Tree plans to ride a wave of pandemic-related sales momentum into a second quarter opportunity that the company is uniquely positioned to leverage.
The deep discounter says it plans to restart renovation projects and other strategic growth initiatives in a bid to capitalize on the sales boost the company experienced during the first quarter as a result of pandemic shoppers. Looking ahead to what is expected to be a deepening economic recession, Dollar Tree plans to do everything it can to attract shoppers in financial distress.
“We have a resilient business model that has been demonstrated to work in varying economic climates,” said CEO Gary Philbin. “With more than 38 million Americans filing unemployment claims in the past nine weeks, we believe that Dollar Tree and Family Dollar are part of the solution to help millions of families stretch their budgets to help make ends meet. Our focus is on meeting customer needs, while growing and improving our business to deliver long-term value to shareholders.”
The company announced it has resumed its Family Dollar H2 renovations and its Dollar Tree Snack Zone installation initiatives after pausing those projects as a result of the COVID-19 crisis in March. The company now expects to complete approximately 750 Family Dollar H2 renovations in fiscal 2020. The company also expects to open 500 new stores in fiscal 2020 (consisting of 325 Dollar Tree and 175 Family Dollar), compared to its original plan of 550 new stores (consisting of 350 Dollar Tree and 200 Family Dollar).
During the first quarter ended May 2, Dollar Tree revenue rose 8% to $6.29 billion. Same-store sales climbed 7% overall. Dollar Tree comps dipped 0.9% but Family Dollar same-store sales jumped 15.5%.
“Family Dollar delivered strong same-store sales with a 15.5% increase and a 230 basis point improvement in operating margin,” said Mike Witynski, enterprise president. “Dollar Tree same-store sales decreased by 90 basis points, as the seasonal and discretionary business was materially impacted by lower Easter holiday sales. The most negatively impacted categories – party, candy, and Easter – affected Dollar Tree’s overall comp for the quarter by approximately 490 basis points.”
Gross profit at Dollar Tree increased 3.9% to $1.79 billion in the quarter compared to the prior year’s first quarter. As a percentage of net sales, gross margin was 28.5% compared to a gross margin of 29.7% in the prior year. The decrease in gross margin was driven by merchandise mix, incremental tariffs of $23 million, markdowns related to Easter merchandise, and higher distribution center payroll costs, partially offset by leverage on occupancy costs from stronger same-store sales.
Operating income for the quarter was $365.9 million compared with $385.5 million in the same period last year and operating income margin was 5.8% in the current quarter compared to 6.6% in last year’s quarter. The first quarter of 2020 included incremental operating costs of $73.2 million, or $0.23 per diluted share, for COVID-19 related expenses, which included wage premiums paid to hourly store and distribution center associates, and safety and sanitization supplies. These incremental costs by segment were $42.2 million for Dollar Tree, $30.4 million for Family Dollar and $0.6 million for Corporate and Support.
Net income was $247.6 million in the first quarter and diluted earnings per share for the quarter were $1.04 compared to $1.12 per share in the prior year’s quarter.
During the quarter the company opened 99 new stores, expanded or relocated 21 stores, and closed 14 stores. Additionally, the company completed 220 renovations to the Family Dollar H2 format. Retail selling square footage at quarter end was approximately 122.1 million square feet.
“I am extremely pleased with the momentum we are seeing in our business early in the second quarter. At Family Dollar, we are seeing continued sales strength with improvements in our discretionary categories. For Dollar Tree, we have seen a rebound on the discretionary side of the business following the Easter holiday, especially in crafts, graduation, stationery, Mother’s Day seasonal and balloons,” Philbin added.
In April Dollar Tree reported same-store sales were up 7.1% at Dollar Tree and up 14.4% at Family Dollar through March 29. The retailer said at the time that sales of household consumables and food were going strong in both banners.
As a result of the volatile economic environment related to COVID-19, including uncertain customer demand and government actions, the company has withdrawn its outlook for the second quarter and full-year fiscal 2020.
“I could not be more proud of our team’s commitment, dedication and efforts during this unprecedented time. Their focus on supporting our stores and rising to the occasion to serve customers seeking essential products has been extraordinary,” added Philbin. “Over time, Dollar Tree has demonstrated its ability to perform well through ever-changing economies. The focus on value and convenience may be greater in the months ahead than ever before. Our strong balance sheet and financial flexibility, the experience and alignment of our leadership teams and the commitment from more than 190,000 associates across North America prepares us to be part of the solution for millions of customers through these challenging times.”
Dollar Tree, a Fortune 200 Company, operated 15,288 stores across 48 states and five Canadian provinces as of Feb. 1. Stores operate under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada. Dollar Tree is No. 30 on Progressive Grocer’s 2020 PG 100 list of the top food retailers in North America. Family Dollar is No. 32.