Dive Brief:
- Riding the high of selling off Family Dollar, Dollar Tree’s second quarter net sales grew 12.3% to $4.6 billion, per a company release Wednesday. Same-store net sales increased 6.5% with growth in both traffic and average ticket.
- The discount retailer reported gross profit jumped 12.9% to $1.6 billion while gross margin increased 20 basis points. Additionally, it opened 106 new stores in the quarter and converted about 585 locations to its multiprice format.
- Dollar Tree raised its full-year guidance, now anticipating net sales to be between $19.3 billion and $19.5 billion, up from $18.5 billion to $19.1 billion. Comps are expected to grow in a range from 4% to 6%.
Dive Insight:
Dollar Tree’s quarterly performance looks bright now that the Family Dollar banner is no longer weighing it down.
The discount retailer finalized its $1 billion sale of Family Dollar to a private equity firms in July, over a decade after it had acquired it for $8.5 billion. Now, Dollar Tree is “a fully focused business,” CEO Mike Creedon said on a call with analysts Wednesday.
“Now that Dollar Tree is completely shot of the rotten apple that was Family Dollar, it can fully focus its capital and time on a proposition that both works and has potential,” GlobalData Managing Director Neil Saunders said in emailed comments.
Executives on the call noted that the impact of tariffs and the company's mitigation tactics have played out differently than expected. Positive impacts from mitigation efforts yielded results sooner, as the more direct impact of tariffs is now expected in the second half of the year.
Creedon and industry analysts touted the success of its expanded pricing assortment. In the quarter, Dollar Tree said it continued to see growth with middle- and high-income shoppers.
“In our view, Dollar Tree's business remains solid and should continue to benefit from a stickier core consumer and gains from middle-to-upper income consumers trading down as macro trends remain challenging,” Telsey Advisory Group analysts said in an emailed note. “Furthermore, the company should benefit from the rollout of multi-price point products, which should provide a long runway of growth.”
Price increases have been taken as part of a larger set of tariff mitigation efforts, but Creedon said that about 85% of the store is $2 or less. However, further price adjustments are not out of the question for the back half of the year.
While recent price increases did not seem to impact ticket growth for Q2, CFO Stewart Glendinning noted to analysts that the company could not say how the consumer will react to additional pricing changes looking at the second half of the year.
