Dollar Tree Gains But Q2 Falls Short

In the second quarter, Dollar Tree gained as it continued to integrate Family Dollar into its operations, although slower comp sales did not meet the market’s expectations.

For the second quarter ended July 30, Dollar Tree posted net income of $170.2 million, or 72 cents per diluted share up from a net loss of $98 million, or 46 cents per diluted share, year over year. Earnings per diluted share missed a Zacks Investment Research analyst average estimate by a penny.

In the quarter, which included nine additional weeks of operations for the acquired Family Dollar operation when compared to the 2015 period, net sales advanced 65.9% to $5 billion versus last year’s quarter. The $1.99 billion gain resulted from an incremental $1.8 billion in net sales from Family Dollar stores, sales from new namesake stores, and a 1.2% comparable store sales increase, on a constant currency basis. Adjusted for the impact of Canadian currency fluctuations, the comp increase was 1.1%. The comp gain arose from increases in customer count and average ticket, the company said. Dollar Tree stores represented about 48% of company sales but 73% of operating income as compared with Family Dollar stores.

Bob Sasser, Dollar Tree CEO, said, “I am very pleased with the company’s overall performance in our second quarter. Through what continues to be a challenging retail sales environment, we delivered gross margin improvement and managed expenses effectively to deliver earnings at the top end of our guidance range. In our Dollar Tree segment, we improved our operating margin and delivered our 34th consecutive quarter of positive same-store sales.”

He added, “Just over a year ago, we completed our acquisition of Family Dollar and our integration continues to progress as planned. The stores are cleaner, the values are greater and our merchandise assortments are improving. Additionally, we are taking the necessary steps to develop our shared services support model and are continuing our focus on cost-related synergy capture. As a combined organization, we are well-positioned to better serve more customers, generate significant cash flows and deliver long-term value to our shareholders.”

In the second quarter, Dollar Tree opened 156 stores, expanded or relocated 52 stores, and closed 17 stores. Additionally, as part of its re-banner initiative, the company reopened 47 former Family Dollar stores under the Dollar Tree banner. The company also converted the remaining 32 Deals stores to Dollar Tree stores. The company operates 14,129 stores.