Dive Brief:
- Dollar Tree’s third-quarter net sales increased 9.4% year over year to $4.7 billion, the company said Wednesday. The discount chain’s same-store net sales grew 4.2%, based on growth in average ticket despite a 0.3% decline in store traffic.
- The retailer’s net income improved 4.8% to $244.6 million while gross profit jumped 10.8% to $1.7 billion. Dollar Tree opened 106 new stores in the quarter, ending the period with 9,269 open locations.
- Dollar Tree narrowed its previous full-year net sales guidance and now expects net sales from continuing operations to range from $19.35 billion to $19.45 billion.
Dive Insight:
Dollar Tree attracted even more wealthy shoppers in Q3 as it embarks on a long-term multiprice strategy.
“We had 3 million more households shop with us in Q3 this year compared to Q3 last year,” Dollar Tree CEO Mike Creedon said on a call with analysts Wednesday. “Approximately 60% of these incremental shoppers came from high-income households, those earning over $100,000.”
As higher-income shoppers head to Dollar Tree, its lower-income customers are growing more dependent on the discount chain. Average spend for lower-income households grew more than twice as fast in the third quarter as the average spend for higher-income consumers, Creedon noted.
Analysts questioned the drop in store traffic during the call, which marks the first reported quarterly decline since fiscal 2022.
Creedon attributed much of the traffic decline to the “peak distraction” of its restickering project and reported that traffic strengthened toward the end of the quarter.
The short-term restickering work is separate from its larger multiprice expansion strategy, and is tied to near-term cost mitigation efforts, Creedon said during an investor day event in October.
“We don’t see it as a push back from our customer,” the CEO told analysts on the Wednesday call. “And if you look at our performance in the quarter, we had great growth across all income cohorts … [W]e saw the traffic decelerate in that August, September timeframe. That was the peak of our restickering.”
However, some see the store visit decline as a symptom of larger macroeconomic issues.
“There is currently a lot of talk about the constraints on lower income consumers, many of which are core customers of Dollar Tree,” GlobalData Managing Director Neil Saunders said in emailed comments. “We see some of these stresses and strains in our data and the consequent impact of them visiting Dollar Tree a little less often by focusing more on trips for essentials while cutting out discretionary trips to browse. This is only marginal, but it is still an unhelpful dynamic for a retailer that needs high volumes to underpin its business model.”
For the third quarter, Dollar Tree’s operating income also grew 3.8% to $343 million and the discretionary mix of sales increased 40 basis points to 50.5%. Additionally, inventory was down 5% year over year.
“Broadly, we believe Dollar Tree’s business remains solid and should continue to benefit from a stickier core consumer and gains from middle-to-upper income consumers trading down as macro trends remain challenging,” Telsey Advisory Group analysts led by Joe Feldman said in an emailed note Wednesday. “Furthermore, the company should benefit from the rollout of multiprice point products, which should provide a long runway of growth.”