Discount retail Chain Dollar Tree (listed on NASDAQ DLTR) outlines plans amid release of its better-than-expected Q4, FY22 earnings
After substantial leadership changes throughout 2022, Dollar Tree has revealed better-than-expected fourth quarter and fiscal year financial results. During its earnings call, the discount retailer said it’s ready to accelerate investments, including grocery.
During the fourth quarter ended Jan. 28, the company reported its consolidated net sales increased 9.0% to $7.72 billion. Enterprise same-store sales rose 7.4%. Dollar Tree same-store sales grew 8.7%, driven by a 10.0% increase in average ticket, partially offset by a 1.1% decline in traffic.
Dollar Tree shoppers have also reacted positively to the company’s multiple product price points. Stores that fully lapped the rollout of Break-the-Dollar produced a 3.0% same-store sales increase in the quarter, and sequentially increased same-store sales in each month throughout the quarter. Stores that had not lapped the Break-the-Dollar produced an 11.6% same-store sales increase, a significant sequential improvement for the second consecutive quarter.
Traffic improved 410 basis points sequentially compared to the prior quarter and is now trending positively as the company has cycled the transition to a $1.25 price point chainwide.
Over at the company’s Family Dollar banner, same-store sales experienced a 5.8% growth. This comprised a 5.3% increase in average ticket and a 0.5% increase in traffic as the company continues to drive strong trends in performance following its price investment and initial accelerated investments in labor and store conditions.
Gross profit escalated 11.6% to US$2.39 billion and gross margin improved 70 basis points to 30.9% for the company. This improvement was driven by higher initial mark-on and lower freight costs, partially offset by a product mix shift to lower-margin consumable products, as well as higher shrink and markdowns.
Selling, general and administrative (SG&A) expenses were 22.9% of total revenue, compared to 22.1%, due to a US$23.9 million non-cash store impairment charge, higher costs for store payroll, higher expenditures related to repairs and maintenance to improve store standards.
Net income was $452.2 million and diluted EPS increased 1.5% to US$2.04. “Our sales performance shows that our third quarter sales momentum continued into the fourth quarter. The same-store sales growth of 8.7% at Dollar Tree and 5.8% at Family Dollar represented comp sales accelerations on a one-, two- and three-year stacked basis, and are evidence that the early transformation actions taken since last summer are already beginning to have a positive impact,” stated Chairman and CEO Rick Dreiling, who stepped into the CEO position on Jan. 29. “We are committed to driving further store productivity as we focus on developing our people, tools and technology to fuel our accelerated growth, while simplifying our operations, improving our supply chain and innovating our merchandising strategy to better support our associates and to better serve our shoppers.”
Part of innovating its merchandising strategy includes adding more space in frozen and refrigerated sections to accommodate consumer demand. Dreiling said the company has been aggressively expanding its US$3, US$4, US$5 frozen and refrigerated product across the Dollar Tree store base, going from 0 to 3,500 stores in 2022.
"This consists of three cooler doors, one at each price point with an attractive selection of proteins, pizza, ice cream and more, which the customers are responding positively to," he said. "What we are seeing with Dollar Tree plus and multiple price frozen is that when the customer purchased at least one of these items, the basket size is more than double the basket with no multi-priced items. We are experiencing a more consistent and predictable slide chain."
Dollar Tree will continue expanding the number of cooler doors with plans to add 16,000 doors in 2023 to accommodate more frozen and refrigerated items. Its goal is to have 30 doors per store.
Dollar Tree is also expected to introduce more store-branded products in the back half of this year. "Our operating initiatives are in flight and are gaining steam and the current economic climate is driving more higher income consumers into value retail," commented Dreiling.
According to a new report from Placer.ai, more consumers are indeed flocking to discount and dollar stores amid high inflation and overall economic uncertainty. Visits to these outlets are now outpacing trips to grocery stores.
Full Year FY22 Highlights
Dollar Tree also released impressive fiscal year 2022 results. Consolidated net sales rose 7.6% to US$28.32 billion. Enterprise same-store sales grew 5.9%. Dollar Tree same-store sales increased 9.0%, driven by a double-digit increase in average ticket, partially offset by a decline in traffic. Family Dollar same-store sales inched up 2.4%.
Gross profit skyrocketed 15.5% to $8.92 billion and gross margin improved 210 basis points to 31.5%.
SG&A expenses were 23.6% of total revenue, compared to 22.5%.
Net income expanded 21.7% to $1.62 billion and diluted EPS increased 24.3% to US$7.21.
During FY22, Dollar Tree opened 464 new stores, relocated 120 stores and closed 205 stores. The Family Dollar banner completed 796 renovations. The company expanded multi-price Plus offering to an additional 1,805 Dollar Tree stores. Retail selling square footage at year-end increased 2.5% to approximately 132.1 million square feet.
Looking ahead, consolidated net sales for full-year fiscal 2023 are expected to range from US$29.9 billion to US$30.5 billion. The company believes its actions and investments, beginning in the second half of fiscal 2022, are already contributing to top-line momentum. The company expects to deliver a low- to mid-single-digit comparable-store sales increase for the year. Selling square footage is expected to grow by 3.0% to 3.5% for the year, with new store growth back-end weighted. Diluted EPS is expected to range from US$6.30 to US$6.80.
“We have undergone a significant amount of change in less than one year, and believe we have the team in place to capture the opportunity ahead of us,” Dreiling added. “We are confident that the accelerated investments outlined will transform our company, will enable and propel us through years of accelerated growth and margin improvement, and will enhance the company’s ability to achieve substantially higher long-term earnings power.”
Dreiling will share more details regarding the company’s vision in the months ahead.
Chesapeake, Va.-based Dollar Tree operated 16,231 stores under the Dollar Tree, Family Dollar and Dollar Tree Canada banners across 48 states and five Canadian provinces as of July 30. The company is No. 29 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.
See here for more: Dollar Tree to Intensify Investments in Food | Progressive Grocer
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