Dollar Tree emphasized its continued integration efforts, including streamlined operational efficiencies across both its Dollar Tree and Family Dollar banners. Combined Q4 net sales decreased 2.4% to USD6.21 billion from the same period prior year. Fourth quarter same-store comps were up 2.4%, 3.2% for Dollar Tree and 1.4% for Family Dollar, the highest quarterly comps for the multi-price point banner in fiscal 2018. Through the end of the fourth quarter, Dollar Tree opened 143 new (83 Dollar Tree and 60 Family Dollar), expanded or relocated 14 (10 Dollar Tree and 4 Family Dollar), and closed 94 (10 Dollar Tree and 84 Family Dollar) stores.
Will Family Dollar profits blossom into spring and beyond?
Anticipating a decline in sales for the first quarter of fiscal year 2019, Dollar Tree estimates Q1 sales in the range of USD5.74 billion to USD5.85 billion. Fiscal year 2019 net sales are projected to be between USD23.45 and USD23.87 billion and are based on low single digit same-store sales growth and 1.0% square footage growth for the full fiscal year. The retailer plans to open 550 new (350 Dollar Tree and 200 Family Dollar), rebanner 200 Family Dollar stores to Dollar Trees, and close 390 underperforming Family Dollar stores.
Family Dollar’s continued struggle, post-acquisition by the Dollar Tree enterprise, speaks to its simultaneous inability to retain shoppers as well as sufficiently grow basket size and attract new shoppers. There are some positives, despite traffic for the banner being down, ticket sizes were up contributing to positive comp growth of 1.4%, the highest for the banner in 2018. Efforts in digital that continue to drive app-engagement are not necessarily translating into gains in profitability.
Operational and inventory change sprouts new growth opportunities
As the enterprise looks to streamline operational efficiencies across both the Dollar Tree and Family Dollar banners, there are three main strategies for growth in Q1 and FY 2019:
Integration: Nearly five years out from acquisition, Dollar Tree has begun making actionable effort towards streamlining its brand and operational identity. Corporate office consolidation at Dollar Tree’s Chesapeake, Virginia headquarters and the continued development of supply chain logistics include co-branded distribution centers that serve the 15,237 stores nationwide.
Store optimization: Dollar Tree and Family Dollar will continue to remodel stores into the H2 format featuring a greater number of cooler doors in an estimated 400 stores, a larger consumables assortment with multiple tiers of private label brands, and the addition of adult beverage to approximately 1,000 stores. This store format costs the same, USD100 thousand to USD150 thousand, to remodel as previous store format iterations, while also expanding growing in-store categories.
Price diversification: Branded tests of single-price-point Dollar Tree products at Family Dollar and, following the “Oops” and “Dollar Tree Deals” multi-price point tests, at select Dollar Tree locations, will seek to encourage basket building behaviors as well as create new trip missions that are shared, and not exclusive to one specific banner.
Dollar Tree has remained the stronger performing banner throughout the year but as the enterprise looks to 2019, corporate focus will be on the revival of Family Dollar. The efforts of the store optimization initiative, inclusive of 390 store closings, are indicative of Dollar Tree’s need to, as CEO and President Gary Philbin stated in the earnings call, ‘get [the Family Dollar] banner to the inflection point”. 2019 will be a year of tackling operational integration at the corporate and store level, optimizing the store base through renovation and rebanner efforts, and diversifying the opening price point to position both the Dollar Tree and Family Dollar banners for an increase in traffic and basket size to remain competitive with retailers both in and outside of the discounter channel.
If you are a KRIQ subscriber, keep an eye out for our upcoming deck discussing Dollar Tree’s Q4 results and implications for fiscal year 2019.
For more information, please contact:
Catherine Lang, Analyst