Dollar Tree on Thursday said that first quarter net sales rose 5% to $5.55 billion from $5.29 billion in the prior-year quarter, as company same-store sales rose 1.4%.
By banner in the quarter, same-store sales at the Dollar Tree banner rose 4% on a constant currency basis (or 4.1% adjusted) and fell 1.1% at Family Dollar, according to a company press release.
Net income in the quarter fell by $40 million to $160.5 million from $200.5 million a year ago. Gross profit rose 4.5% to $1.7 billion, up from $1.63 billion last year. As a percentage of sales, gross margin declined 20 basis points to 30.6% from 30.8% a year ago, driven primarily by higher shrink, distribution and occupancy costs, partially offset by lower markdowns and lower merchandise costs, the company said.
Along with increased costs, cold spring days tell part of the story in the first quarter, according to CEO Gary Philbin, who said in a statement Thursday that things improved in May, along with the weather.
The unseasonable chill did indeed likely play a role, but a good reason for the softness in the quarter lands at the doors of the company's Family Dollar stores, acquired nearly four years ago for $8.5 billion, according to GlobalData Retail Managing Director Neil Saunders. Dollar stores in general cater to a lower-income consumer segment and they can actually suffer in better economic times. Dollar Tree stores, however, offer something of a treasure hunt experience that helps mitigate that.
"Family Dollar remains the weaker part of the business," Saunders said in comments emailed to Retail Dive, noting that shopping there is more needs-based than discovery-based. "There is nothing wrong with this position, but it does mean that as financial conditions improve, or people feel they can afford something better, they are more likely to migrate away — especially in non-consumable categories. This is, to an extent, what happened in the first quarter thanks to rising incomes and better consumer sentiment."
In bad news for many consumers but possibly good news for Dollar Tree, dissipating tax benefits and rising gas prices could send shoppers back to its Family Dollar stores. But the company must do more to shore up that business, Saunders warned. "The challenge for the Dollar Tree group is to transform the Family Dollar experience so that it is more compelling and stimulates greater levels of loyalty," beyond its store revamps and new private labels.
E-commerce sales aren't adding much to the top or bottom lines, partly because, as Moody's Investors Service lead retail analyst Mickey Chadha said in a note emailed to Retail Dive on Thursday, "the average ticket for a dollar store of around $10 is uneconomical for e-commerce vendors to compete with given cost of shipping." But "Dollar Tree Direct" is nevertheless probably helping boost the brand, and will become increasingly more important over the next five years or so, Saunders said.