Dollar Tree income falls; reviewing Family Dollar portfolio

Dollar Tree reported mixed third-quarter results as shoppers continued to cut back on discretionary purchases. 

The deep discounter also said it has initiated a comprehensive review of its Family Dollar business “to address stores that are not aligned with its transformative vision for the company.” The review will include identifying stores for possible closure, re-bannering or relocation. (At the end of the third quarter, slightly more than half of the company’s approximately 16,622 stores operated under the Family Dollar banner.)

Dollar Tree's net income fell to $212.0 million, for the quarter ended Oct. 28, or $0.97 a share, from $266.9 million, or $1.20 a share, in the year-ago period. Analysts had expected earnings per share of $1.01.

Revenue increased 5.4% to $7.31 billion, missing estimates of $7.40 billion. Sales of discretionary purchases such as home décor, electronics and toys fell 12.5%, Dollar Tree CEO Rick Dreiling told analysts on the company’s earnings call. Sales of food and beverages rose 6.2%.

Same-store sales increased 3.9%, less than analysts expected. By banner, Dollar Tree same-store sales rose 5.4% at Dollar Tree and were up 2% at Family Dollar, whose core lower-income customer continues to cut back on spending.

The retailer added $3, $4 and $5 frozen and refrigerated items to 920 additional Dollar Tree stores during the quarter. It also expanded its multi-price Plus offering to 870 additional Dollar Tree locations.

“Customers are clearly responding to our expanded multi-price assortment, as our research shows us that 17% of U.S. households have purchased a multi-price product from a Dollar Tree store at least once in the past 12 months,” Dreiling told analysts.

Gross margin fell by 0.2 percentage points to 29.7% in the third quarter, partly due to elevated shrink, as well as a product recall and fewer sales of discretionary items. 

“Our third-quarter results were within our expectations thanks to continued execution across all aspects of our business transformation,” stated Dreiling in the earnings release. “In a challenging environment, our performance was among the best in retail as we continue to grow traffic, unit, and sales per square foot.”

Dollar Tree also narrowed its fiscal 2023 guidance.

“Our current outlook takes into consideration several factors including continuing strength at the Dollar Tree banner, incremental freight savings, softer demand from low-income households, and a continuation of the shrink and sales mix headwinds we have seen throughout the year,” said CFO Jeff Davis 

The company now expects fiscal 2023 consolidated net sales to be between $30.5 billion and $30.7 billion, compared to its previous estimate of $30.6 billion to $30.9 billion. Profit is expected to range from $5.81 to $6.01 per share, down from its prior outlook of between $5.78 and $6.08. 

Dollar Tree opened 197 new stores during the third quarter, including 107 Dollar Tree locations and 90 Family Dollar stores, for a total of 16,622 locations across 48 states and five Canadian provinces. Stores operate under the brands of Dollar Tree, Family Dollar and Dollar Tree Canada.