Dollar Tree dazzles in hot retail sector

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Dollar Tree dazzles in hot retail sector

By Mike Troy - 11/21/2017

Everything that could go right did go right for Dollar Tree in the third quarter leading President and CEO Gary Philbin to increase the company’s full year outlook.

Dollar Tree, Inc., the parent company of Dollar Tree and Family Dollar stores, operates in what Philbin contends is the most attractive sector in retail, namely the intersection of value and convenience. The combination helped the company grow total sales 6.3% to $5.32 billion. The growth was driven by a 3.3% same store sales increase and the addition of new selling space. During the quarter, Dollar Tree opened 169 stores, expanded or relocated 23 stores, and closed six stores. It ended the quarter with 14,744 stores.

"Our team delivered terrific results in the third quarter," Philbin said, citing accelerating same store sales, improved operating margin and 40% earnings per share growth. “Our third quarter results demonstrate our continuing progress in delivering value and convenience, serving more customers in more markets across North America, through our diversified business model."

The same-store sales growth was caused by increases in average ticket and comparable transaction count with Dollar Tree stores outpacing the Family Dollar format. Same-store sales for the Dollar Tree banner, which includes locations in Canada, increased 5% on a constant currency basis while comps for the Family Dollar banner increased 1.5%.

Net income increased 40% to $239.9 million while earnings per share increased 40.3% to $1.01. The company’s operating margin expanded to 8% from 6.8% as gross margins expanded to 31.3% from 30.4% and SG&A contracted to 23.3% of sales from 23.6% of sales the prior year.

“Dollar Tree’s better than expected quarterly results demonstrate the popularity of the value segment among consumers and is evidence that not all retail segments are hurting," said Moody’s Vice President Mickey Chadha. "We expect Dollar Tree to continue to outperform as consumers remain price conscious, given its broad merchandise assortment at very low prices. We believe Dollar Tree benefits from its convenient smaller shopping locations which makes the stores faster to shop than the larger format of other discounters.”

The company estimates fourth quarter sales will range from $6.32 billion to $6.43 billion with a comp increase in the low single digits. Earnings per share are estimated to be in the range of $1.80 to $1.89. The company now expects full year sales to range from $22.2 billion to $22.31 billion compared to an earlier forecast of $22.07 billion to $22.28 billion.

“Our stores and teams are well-prepared and energized as we enter the fourth and final quarter of 2017. We are confident in our ability to continue driving positive same-store sales, through meeting our customers' needs and wants; improving enterprise operating margin; and delivering year-over-year earnings per share growth,” Philbin said. “We believe we are well-positioned in the most attractive sector in retail and will remain intensely focused on delivering great value and convenience to our growing customer base. Both banners are ready for the holiday season, and we have an experienced leadership team, momentum in our business and a continued focus on this transformational opportunity."