Dive Brief:
- Dollar Tree Inc.’s consolidated net sales rose 5.4% to $7.3 billion in the third quarter, the company said Wednesday. At the company’s namesake banner, net sales rose 6.6% year over year to about $4 billion. Family Dollar net sales rose 3.9% to $3.3 billion.
- The company’s overall same-store sales grew 3.9%, while Dollar Tree comps increased 5.4% and Family Dollar comps grew 2% from the year-ago period. The company's operating income fell nearly 21% year over year to $301.7 million from $381.3 million last year.
- Dollar Tree lowered its full-year outlook Wednesday. The company now expects its fiscal 2023 consolidated net sales to range from $30.5 billion to $30.7 billion, down from a previous range of $30.6 billion to $30.9 billion.
Dive Insight:
While the Dollar Tree brand continues to attract customers from a broader and higher range of income levels, CEO Rick Dreiling acknowledged that the Family Dollar banner’s Q3 performance fell short of the company’s expectations.
Most new Dollar Tree customers have annual household incomes over $125,000 and that demographic “was a significant contributor to Dollar Tree’s quarter three comp growth,” Dreiling said during an earnings call. In contrast at Family Dollar, although price value perception remains strong, the banner didn't perform as anticipated.
"Similar to what other retailers have reported, we experienced softening trends throughout the quarter, particularly in October, as lower income consumers responded to the accumulated impact of inflation and reduced government benefits," Dreiling said. "We saw a notable pullback in spending, particularly in higher-margin discretionary categories."
Dreiling said the company has initiated “a comprehensive review of our Family Dollar portfolio to address underperforming stores that are not aligned with our transformative vision for the company.” The review will involve identifying stores for possible closure, re-bannering or relocation. Slightly more than half of the company’s approximately 16,622 stores it operated as of Oct. 28 were under the Family Dollar banner.
“Going forward, we need to ensure that the Family Dollar portfolio is well-positioned for success and meets the financial and operating objectives of our organization and the expectations of our valued customers and associates. We believe that this action will fortify our base, strengthen our brand and allow Family Dollar to achieve its full growth potential,” Dreiling said.
Despite missing expectations, Family Dollar’s overall sales and comp sales for Q3 are reasonable but the numbers represent “a significant downtick on the levels that were delivered over the past year,” GlobalData Managing Director Neil Saunders said in emailed comments. “Some of this is down to tougher prior year numbers, but some is also a consequence of a slight uptick in the rates of shopping around by core consumers and a slower pace of new customer acquisition.”
Saunders said the portfolio review is a prudent move and noted that Family Dollar is pursuing good business initiatives, like expanding private label options, which gives shoppers alternatives to national brands and allows the retailer to better compete with rival Dollar General and discount grocery stores.
Regarding Dollar Tree's ongoing expansion of price points, Dreiling said the banner's customers are “very receptive to what’s going on.” Dollar Tree moved to a $1.25 minimum price point for many items about two years ago.
At the same time, “I don't want anyone to think there's going to be 100 different price points in that store,” Dreiling said. “Our core price point is still $1.25 and what we're working on what is the right amount and right number of price points.”
Still, like other retailers in recent months, Dollar Tree has lowered its financial guidance. Chief Financial Officer Jeff Davis said the revised outlook is based on many factors, including an unfavorable environment for discretionary purchases and softer demand from lower-income households.
“Similar to other retailers you've heard from this earning season, we're seeing more macro pressures than we did earlier in the year, particularly among our lower-income consumers,” Dreiling said. “Nonetheless, I'm encouraged by our market share momentum, and I am confident in our outlook for the balance of the year.”
