Retailer posts 5.1% comp-store sales gain in Q3

CHESAPEAKE, Va. — Dollar Tree Inc. plans to expand its multi-price Dollar Tree Plus! initiative into about 500 stores beginning in the spring of 2021, the company said Tuesday.

The announcement came as the retailer reported increased sales and profits for its fiscal third quarter ended October 31. Consolidated net sales increased 7.5% to $6.18 billion from $5.75 billion in the prior year’s third quarter. Enterprise same-store sales increased by 5.1%. Same-store sales for the Family Dollar chain increased by 6.4%, while same-store sales for the Dollar Tree chain increased 4.0%.

Gross profit increased 12.9% to $1.92 billion in the quarter compared to the prior year’s third quarter. Gross margin increased 150 basis points to 31.2%, compared to 29.7% in the prior year’s quarter. The increase in gross margin was driven by improved merchandise costs including freight, leverage on occupancy costs from stronger same-store sales, improved shrink results and reduced markdowns, partially offset by higher distribution costs, which included $10.9 million in COVID-19-related payroll costs.

Selling, general and administrative expenses were 23.7% of net sales, compared to 23.5% of net sales in the prior year’s third quarter. The increase was driven by COVID-19 costs of $35.3 million, or 57 basis points, related to frontline associate wage premiums, field management bonuses and store cleaning/PPE supplies.

Operating income for the quarter improved 29.9% to $465.5 million, compared with $358.4 million in the same period last year and operating income margin was 7.5% in the current quarter, compared to 6.2% in last year’s quarter. The third quarter of 2020 included total incremental operating costs of $46.3 million, or $0.15 per diluted share, for COVID-19-related expenses. These incremental costs by segment were $28.6 million for Dollar Tree, $17.4 million for Family Dollar and $0.3 million for Corporate, Support and Other.

Net income was $330.0 million in the third quarter and diluted earnings per share for the quarter increased 28.7% to $1.39, compared to $1.08 per share in the prior year’s quarter.

“Dollar Tree delivered its strongest same-store sales performance in the past ten quarters, along with a 50 basis point improvement in operating margin,” Dollar Tree president and chief executive officer Mike Witynski said. “At Family Dollar, the improvement continues as the team delivered a 6.4% comparable-store sales increase, a 230 basis point improvement in gross profit margin and a 250 basis point improvement in operating margin.”

Dollar Tree said that it has tested a multi-price initiative referred to as Dollar Tree Plus! since mid-2019. The company began trying out multi-price assortments in more than 100 stores in the Southwest, and it has modified the approach based based on how customers have responded. Those changes include transitioning the offering from consumable products to primarily discretionary items; reengineering the display elements and signage to drive awareness and excitement in stores; focusing on the $1, $3 and $5 price points; and increasing the offerings above the $1 price point. Dollar Tree said it will be expanding this initiative into a total of about 500 stores beginning in the spring.

Dollar Tree said it has also made significant progress in optimizing its portfolio of stores through new store openings, renovations, re-banners and closings. The H2 renovation program at Family Dollar continues to be a key component of the momentum in the turnaround. The H2 stores, on average, continue to comp at a 10%+ lift compared to non-renovated stores in their first year. Customers are responding favorably to the new categories and new price points, the company said, adding that the renovation of older Family Dollar stores remains a bit opportunity.  As of October 31, the company has updated about 2,240 Family Dollar to the H2 format, and current plans call for the renovation of about 1,250 additional Family Dollar stores in 2021.

“The team has accomplished a great deal to get us to this stage,” Witynski said. “With one consolidated store support center; a strong balance sheet; an aligned, energized and focused leadership team; and a full staff of talented retailers, we believe we have the ability to better serve customers across North America,” Witynski added. “We have a unique and transformational opportunity to leverage the power of our two brands, through flexible store formats designed to drive improved operational performance.”