Dollar Tree to Surpass $20 Billion in Annual Sales
By Mike Troy
Since completing its acquisition of Family Dollar over a year ago, Dollar Tree has grown to more than 14,000 locations and is well positioned for further gains as it realizes merger benefits.
Dollar Tree completed its acquisition of Family Dollar last July, and since then it has continued to open new stores, implement operational and merchandising changes and pursue merger synergies that have the company on track to achieve record profits and surpass annual sales of $20 billion, according to guidance CEO Bob Sasser shared after reporting results for the quarter ended Oct. 29.
Total sales increased 1.1 percent to $5 billion during the period due to same store sale growth and the addition of new stores. Same store sales increased 1.7 percent compared to a 2.1 gain the prior year due to growth in customer traffic and average transaction size. The Dollar Tree store count increased by 158 units to 6,320 locations and the base of Family Dollar stores grew by 76 units to 7,964 locations for a combined total of 14,284 stores.
The company’s sales growth during the period would have been stronger, but sales were lost as a result of 325 Family Dollar stores that were divested as a condition of the acquisition by Dollar Tree and comparison to a prior year period that included a larger percentage of Halloween sales because it ended on Oct. 31, 2015.
Profits during the period, the first quarter since Dollar Tree has owned Family Dollar for a full three months in the prior year, increased significantly. Operating income increased 53.1 percent to $342.4 million and net income for the quarter increased 109.4 percent to $171.6 million. Adjusted earnings per share of 81 cents, were near the high end of the company’s forecast range of 76 cents to 82 cents.
"I am encouraged by our continued progress in building the foundation for a larger, stronger and more profitable Family Dollar business. The stores are cleaner, the values are greater and our customer feedback scores regarding merchandise assortments and in-stocks have improved,” Sasser said. “As a combined organization, we are uniquely positioned to efficiently grow our businesses to better serve more customers in more markets. We are well-positioned and prepared for the upcoming fourth quarter and holiday selling season.”
One of the reasons for his optimism is the company’s ongoing expansion of the frozen and refrigerated category. In the third quarter the company installed freezers and coolers in 154 additional Dollar Tree stores, and now offers frozen and refrigerated product in 4,710 stores. It plans to continue expansion of the category.
“The Dollar Tree banner continues to show strong, consistent growth, and we continue to make meaningful progress in the integration of Family Dollar,” Sasser said during a conference call, noting that Dollar Tree stores have registered same-store sale growth for 35 consecutive quarters. “We remain on track to achieve our expected synergies target of $300 million in run-rate by the end of the first three years. This includes improvements in direct and indirect procurement, rebannering of select stores, and the development of our shared services model including supply chain and logistics. There's still much more to be done, and I believe we will ultimately surpass our target. Customers are shopping our stores more often and we continue to attract new customers every day, and when these customers are in the store, they're buying more.”
The situation is a bit different at Family Dollar stores, where president and COO Gary Philbin said same-store sales declined in the low single digits even though the company is making progress in a wide range of areas. Store are cleaner and better merchandised with more compelling end cap displays, indicating Family Dollar is on track with improve execution of retail basics.
“Our consumable business at Family Dollar outperformed our discretionary business, and geographically our West and mid-Atlantic regions were the strongest performing areas of the country for us,” Philbin said.
One area of promise involves a digital couponing initiative called “Smart Ways to Save.”
“Our customers have responded positively with above-projection signups from our Labor Day kickoff. We already have over 1 million customers signed up,” Philbin said.
The Family Dollar brand is also featured in a new game show format that debuted on the CW Network on Nov. 5 that features leading consumer goods brands and Family Dollar private label items.
“We added emphasis to our Smart Ways to save strategy with the kickoff on the CW Network of our partnership of a 30-minute game show called Save to Win,” Philbin said.
Looking ahead to the fourth quarter, Dollar Tree expects its full year sales to range from $20.67 billion to $20.77 billion, assuming a full year same-store sales increase in the low single digits and 3.9 percent growth of selling space. Net income per share is expected to range from $3.67 and $3.76.