Dive Brief:
- Dollar Tree Inc.’s top-line sales rose 8.1% year over year to over $6.9 billion in the third quarter. By banner, Dollar Tree comp sales rose 8.6% and Family Dollar comps were up 4.1%.
- The retailer’s gross margin increased 240 basis points to 29.9% despite a larger share of lower-margin consumables in the mix along with rising costs, shrink and markdowns. Operating income rose 22.8% from last year.
- In a press release, CEO Mike Witynski attributed the sales lift to “the timely execution of merchandising initiatives to drive our consumables business” and said consumers were “responding to our new value proposition at Family Dollar and Dollar Tree.”
Dive Insight:
Dollar Tree is ending 2022 as a very different retailer than the one it was when the year began. For one, it has a revamped board and a new chairman, who have reshaped the C-suite, following an activist investor campaign that won major concessions earlier this year.
With the notable exception of Witynski, management looks very different than it did when the company started 2022. The company has hired a new chief operating officer, chief financial officer and chief information officer, and has more recently added roles to the C-suite that are new to the company. Specifically, Dollar Tree hired chief compliance, diversity, sustainability and communications officers.
With new management, the company — after suffering profit hits during last year’s supply chain backups and freight rate spikes — has turned its attention to price gaps between its Family Dollar banner and competitors, and is now looking to win over customers from rival Dollar General and others with more competitive price tags.
The new team, with new initiatives, has a win in Q3, with the sales lift. Neil Saunders, managing director with GlobalData, noted in emailed comments that the sales performance is the best in over a year and is “more in line with what we would expect in a market where consumers are migrating to the value channel in increasing numbers.”
Saunders added, “Although it is early days, the figures provide some confidence that after all the various leadership changes, the new management team is starting to change the business for the better.”
In part, the price moves at Family Dollar may be accomplishing their purpose. Rick Dreiling, Dollar Tree Inc.’s new executive chairman, told analysts Tuesday, “Customers are recognizing this commitment to value, which contributed to a 4% comp sales increase and the segment's first quarterly traffic increase in three years.”
Dreiling added that employee teams are working to improve standards at the Family Dollar stores themselves. “They are committed to clean them up, straighten them up and fill them up,” Dreiling said.
Despite the work on the Family Dollar banner, Saunders argued there is “a lot of sloppiness which still needs to be corrected” at the division.
“This includes issues within the supply chain, and basic standards of shopkeeping and hygiene,” Saunders said. “However, if the top team can engineer significant change, then they will allow Family Dollar to finally reach its full potential.”
Analysts with Jefferies noted that the company’s earnings and sales beat the consensus, but that management’s lift in its sales guidance is “overshadowed” by the pressures on its margins, including the shift to consumables and rising costs for products.
“We are encouraged by recent momentum in the business, particularly the inflection in traffic trends at [Family Dollar], but we reiterate our Hold-rating given Family Dollar's profitability profile still lags that of [Dollar General],” the analysts said in a research note Tuesday.
