Dollar Tree changes course with Family Dollar
It’s going to be a busy year for Family Dollar in 2019 as parent company Dollar Tree moves from integrating the acquisition to optimizing the performance of a business that has lagged rival Dollar General for the past three years.
Dollar Tree reported financial results for its third quarter ended Nov. 2 and it was a familiar story. Total sales at Dollar Tree (including Family Dollar stores) increased 4.2 percent to $5.5 billion and were driven by strength at Dollar Tree locations offset by weakness at Family Dollar. Same store sales at Dollar Tree stores increased, as they have done for 43 consecutive quarters, to 2.3 percent, while Family Dollar same store sales declined 0.4%. Net income compared to the prior year's third quarter increased $41.9 million to $281.8 million and earnings per share increased 16.8% to $1.18 compared to $1.01 in the prior year’s quarter.
“We delivered earnings within the range of our expectations despite continued cost pressures related to domestic freight and our investment in store wages,” said Gary Philbin, President and Chief Executive Officer of Dollar Tree. “Dollar Tree delivered its 43rd consecutive quarter of same-store sales growth, with increases in both customer transactions and average ticket. We are pleased with the performance of our newly renovated Family Dollar stores.”
He also called out that the company has begun the important phase of consolidating store support centers into the company’s Chesapeake, Va. campus, which is expected to improve support for Family Dollar stores through enhanced collaboration, communication and teamwork.
Following the completion of the acquisition of Family Dollar in July 2015, Dollar Tree maintains it has made significant progress on integrating the acquisition and, even though it has been more than three years since the deal closed, concedes there is more integration work to be done. For example, as part of the integration process, the company has implemented initiatives to establish a single foundation to improve efficiencies across the organization and support the growth of the Dollar Tree and Family Dollar brands.
For example, the company said it has implemented a shared services model across corporate support functions, including finance, human resources, information technology and supply chain and introduced common technology platforms. Dollar Tree also said it has improved supply chain efficiencies by refining processes first introduced at a combined distribution center in 2016.
From an expense structure standpoint, Dollar Tree is also consolidating corporate functions at its Chesapeake headquarters location and expects to complete the consolidation by the fall of 2019.
As it relates to Family Dollar, productivity and growth initiatives include inventory investments to improve in stock levels, the launch of a “Smart Ways to Save,” marketing program, increasing the emphasis on consumables and refrigerated products and launching a Smart Coupon mobile initiative. The company also said it plans to improve, rebrand and expand its private label offering.
The Family Dollar physical footprint is also going to undergo changes. Since the company was acquired, there have been 830 Family Dollar stores opened, 865 renovated and 354 locations were rebranded as Dollar Tree and 195 locations were closed.
Rolling into 2019, the company said it plans to accelerate its store optimization program, and currently expects to renovate a minimum of 1,000 Family Dollar stores, open 350 new Dollar Tree and 200 new Family Dollar stores and re-bannering an additional 200 Family Dollar stores to Dollar Tree stores.
“Through the hard work we have done over the past three and a half years, we have put in place the foundational elements that we need to be successful over the long term,” said Philbin. “We are now accelerating our program to optimize our fleet of Family Dollar stores to improve the customer experience and accelerate our growth. We are confident that our testing has resulted in creating models for renovations that are effective in both urban markets and rural communities, and when we look across the country, we see a tremendous opportunity ahead of us.”