Dive Brief:

• Dollar Tree’s consolidated net sales rose 9% year over year to $7.7 billion for the fourth quarter, the company said in a Wednesday earnings announcement. Gross profit increased 11.6% from the year-ago period to $2.4 billion, and operating income for the quarter increased nearly 7% to $618.1 million.
• Overall company same-store sales increased 7.4% in Q4. By banner, Dollar Tree comps increased 8.7% — driven by a 10% increase in the average ticket, despite a 1% decline in traffic — and Family Dollar comps rose 5.8%, which comprised a 5.3% increase in average ticket and 0.5% uptick in traffic.
• For the full year, consolidated net sales increased 7.6% to $28.3 billion, gross profit increased 15.5% to nearly $9 billion and operating income rose 23.5% to $2.2 billion. In its first quarter guidance, the company expects consolidated net sales to range from $7.2 billion to $7.4 billion.

Dive Insight:

With consumers still feeling pressed by inflation, Dollar Tree joined a growing chorus of retailers saying that recent spending on consumables outpaced discretionary purchases, and that trend is likely to continue for the near term.

In spite of the economic environment, CEO Rick Dreiling said the company’s recent positive financial performance is evidence that Dollar Tree’s strategies are working. Dreiling said the company will continue simplifying its operations and improving its merchandising strategy. To do so, the company will sustain its investments in talent, tools and technology.  “As a high transaction volume business, it's critical we have processes in place to get product onto our shelves quickly. I'm certain that we can't sell a product if it's in the backroom,” Dreiling said.

Dreiling said the cost of those investments is reflected in the company’s outlook for the year as a $430 million increase in SG&A. Returns on those investments will likely be realized in 2024. The company on Wednesday said for the year it anticipates comp sales increases in the low-single digits for the company’s Dollar Tree banner and mid-single digits for Family Dollar banner.

Dreiling also said the company is doubling down on an initiative he mentioned during Q3’s earnings call. “I spoke about an intense focus on store standards — our commitments to clean them up, straighten them up and fill them up. When we do this, our shoppers respond with a bigger basket and more importantly, with repeat visits,” Dreiling said.

The company’s leadership team is very different than it was just over a year ago. Only two of the 16 corporate officers listed on Dollar Tree’s website were with the company 15 months ago and “that is clearly a great deal of change in a very short period of time,” said Dreiling, who is also part of the new leadership, having formally stepped into the CEO role about a month ago. CFO Jeff Davis is also relatively new to the role, being appointed to that position in August.

Analysts with Telsey Advisory Group, led by Joseph Feldman, said in a Friday note that “Dollar Tree has a multi-year runway of growth” ahead. The factors driving that growth include new store openings, the $1.25 price point change and the rollout of Dollar Tree Plus, which offers a larger assortment of items priced between $3 and $5.

“These transformative initiatives, combined with joint sourcing, joint distribution centers, and in-store changes, such as new cooler doors and snack zones, should drive solid multi-year improvement in productivity and profitability,” Feldman said in the note.