Dive Brief:
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With more higher-income customers shopping at its stores and without its Family Dollar business weighing it down, Dollar Tree Q1 net sales surged 11.3% year over year to $4.6 billion, with comps up 5.4%, traffic up 2.5% and average ticket up 2.8%.
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The discounter added 2.6 million new customers in the period, most of them from households earning $100,000 or more annually, CEO Mike Creedon told analysts Wednesday.
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Family Dollar net sales fell 4.4%, per GlobalData research. The $1 billion sale of Family Dollar to private equity, announced in March, is expected to close in Q2 and net about $800 million, per Dollar Tree’s Q1 earnings release.
Dive Insight:
The “dollar” in Dollar Tree has become more notional than operational as the retailer has loosened up its pricing strategy in recent years, now with items as high as $7. Creedon on Wednesday touted this “multiprice” approach — dubbed “3.0” and found at about 3,500 locations — saying it “has added a new dimension to our agility.”
“Multiprice allows us to expand our product assortment, to give customers access to a wider variety of items at a wider variety of value-centered price points,” he said. “This way, our offerings remain attractive and relevant under a wide range of macro, inflationary and tariff scenarios and as the success of our 3.0 stores suggests, our customers are responding positively as we build on the ability to meet our customers’ needs and deliver great value. We will continue to scale this model.”
The comp strength in the quarter “is a powerful indication that [Dollar Tree’s] multi-price effort in discretionary is gaining traction and yielding share,” Wells Fargo analysts led by Edward Kelly said in a Wednesday research note.
“Multi-price carries execution risk, but also meaningful upside potential and [Dollar Tree] is still in the early innings,” they said. Creedon on Wednesday said the retailer is on track to expand the format to about half of its fleet by the end of the year.
Unloading Family Dollar, which Dollar Tree acquired a decade ago for a whopping $8.5 billion, is giving the retailer an edge against rival Dollar General for the first time in a while, according to Emarketer analyst Rachel Wolff.
"Dollar Tree is benefiting from the current period of uncertainty, as shoppers of all incomes turn to discounters more often to stretch their budgets. While the company has struggled in the previous quarters compared with Dollar General, the sale of Family Dollar is allowing Dollar Tree to shore up its bottom line and offer more value to shoppers,” Wolff said in emailed comments. “Those efforts are clearly resonating. Unlike Dollar General, Dollar Tree grew both ticket size and traffic during the quarter, a sign that more shoppers are turning to the retailer more often.”
Gross margin in Q1 expanded by 20 basis points to 35.6%, thanks mostly to lower freight, improved mark-on and lower occupancy costs due to sales leverage. That was somewhat offset by higher distribution, shrink and markdown costs, Dollar Tree said. Rival Dollar General, on the other hand, saw shrink decline in its most recent quarter, about a year after it removed most of its self-checkout.
Net income at Dollar Tree rose 14.4% to $343.4 million in the quarter. Dollar Tree also said in its release that it maintains its fiscal year outlook, assuming that tariff levels will remain as they were as of Wednesday, even though it expects to “mitigate most of the incremental margin pressure from higher tariffs and other input costs.”
The company expects full-year net sales to reach between $18.5 billion and $19.1 billion, based on comps growth of between 3% and 5%.
“Despite its successes during the quarter, Dollar Tree’s decision to maintain its full-year sales outlook shows that it is staying cautious given the fluid tariff environment and its impact on consumer confidence and sales trends,” Wolff said.
