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Dollar Tree: single price point king
W
hen Dollar Tree began the year, president
and CEO Bob Sasser had some straightforward goals. He wanted to increase
customer traffic, thrill shoppers with surprising
values on merchandise that satisfies needs and
wants, improve the shopping experience and
gain market share.
“We continue to make progress on all these
goals,” Sasser said following the release of
second-quarter financial results that show Dollar
Tree remains the unrivaled king of the single
price point world.
Operators such as Dollar
General and Family Dollar
may have increased their
single price point assortments in recent years, but
neither can touch the value
proposition of Dollar Tree
and the unmistakable appeal of shopping at a store
where nothing costs more
than one dollar.
As a result, Dollar Tree is
arguably one of, if not the
most, uniquely positioned
companies in the retail
landscape. The company is
approaching 5,000 stores
and over time has steadily
1
improved the productivity of its selling space and
expanded assortments to offer more frequently
purchased items that generate customer traffic.
Accordingly, Dollar Tree several years ago began
adding frozen and refrigerated sections to stores
to complement the offering of consumables. At
the end of the second quarter, the frozen and
refrigerated sections were in 2,403 of the company’s 4,523 stores, with plans calling for the
conversion of another 138 units by year end.
“Our growth strategy remains consistent. It
is to open more stores, to open more productive
stores, and to develop and
expand new formats in new
market and new channels,”
Sasser said.
And to serve all those
stores the company is
expanding its distribution center capacity. In
July, Dollar Tree broke
ground on its tenth DC, a
1 million-sq.-ft. facility in
Windsor, Conn., that will
enable the company to
more efficiently service an
expanding footprint in the
Northeast.
Continued on page 3
ollar Tree hung a 4.5% same-store sales
increase on the board for its second quarter
ended July 28 on top of a prior-year gain of 4.7%.
A solid performance to be sure and one many
retailers would love to achieve given the state
of the U.S. economy. However, for the nation’s
leading single price point retailer, past success
has led to ever greater expectations. As a result,
the company’s top-line growth and the outlook it
shares for the remainder of the year was viewed
as a disappointment by Wall Street and sparked a
sell-off in Dollar Tree shares.
Despite the downward move, the company produced strong results amid challenging economic
conditions and increasing gas prices. Secondquarter sales increased 10.5% to $1.7 billion
from $1.54 billion the prior year. The increase was
driven by the addition of 77 new stores, along with
a 4.5% increase in same-store sales. Through
the first half of the company’s fiscal year, sales
increased 11% to $3.43 billion, and same-store
sales increased 5.1% on top of a 5.9% gain during
the first half of the prior year. Through the first half
of the year, the company added 187 news stores,
leaving it with a total of 4,523 units in the United
States and Canada, a market entered in November
2010 with the acquisition of Dollar Giant.
Dollar Tree’s earnings per share increased
30.8% to 51 cents a share compared with 39
cents the prior year. Earnings during the first half
of the year were $1.01, up 27.8% compared with
earnings per share of $0.79 in the first half 2011.
“Dollar Tree continues to deliver consistently
strong sales and earnings,” said president and
CEO Bob Sasser. “I am particularly proud of the
increases in operating margin and inventory
turns. We remain focused on providing great
values for our customers and superior returns for
our shareholders.”
Operating margin increased 80 basis points
during the quarter to 10.8%, a figure Sasser
noted is the highest second-quarter operating
margin in the history of the company. During the
first half of the year, operating margin increased
70 basis points to 10.9%.
Continued on page 3
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Continued from page 1
Continued from page 1
Further north, the company has big growth
plans as well for Canada, a market it entered
in November 2010 with the acquisition of
Dollar Giant. There are only 117 Dollar Tree
stores in Canada currently, following the
opening of 18 units so far this year, but
Sasser expects that to change considerably.
“We have a lot of room to grow at Dollar
Tree. We believe the Canadian market can
support up to 1,000 Dollar Tree stores,”
Sasser said. “This is in addition to the
7,000-store potential for Dollar Tree in the
United States plus additional growth in our
Deals format.”
Deals is the name of the company’s concept where it isn’t limited by a single price
point. There are currently 190 Deals stores.
“By lifting the restriction of the $1 price
point at Deals, we are able to serve more
customers with more products at value prices
every day,” according to Sasser. “Customers are responding favorably to the strategy,
customer awareness of the Deals brand is
growing, and the concept is building
momentum.”
E-commerce is another somewhat
surprising growth platform for the company,
but numbers don’t lie. Dollar Tree now offers
more than 2,500 items online and aggressively calls out their availability in stores.
The retailer’s website had 4 million unique
visitors in the second quarter and boasts
more than 500,000 friends on Facebook.
Going forward, Sasser sounds incredibility
optimistic about Dollar Tree’s prospects and
multiple growth platforms.
“Our business model is powerful and
flexible, and we can adapt to a changing
environment,” he said. “This has been tested
by time and validated over the company’s 26year history. Our balance mix of high value
consumer basics and our unique assortment
of fun and compelling discretionary products
positions us to be relevant to customers in all
economic circumstances.” l
Dollar Tree at-a-glance
Headquarters: Chesapeake, VA.
President and CEO:
Bob Sasser
Annual sales:
$6.63 billion*
Net income:
$488 million*
Operating margin 11.86%
Number of stores: 4,351*
Average store size:
8,600 sq. ft.
* Sales, net income and store count for FY ended 1/28/12
Source: Company reports
3
Dollar Tree looks for the momentum to continue during the third quarter and the second half
of the year, although its guidance left some analysts underwhelmed. The company said it expects
same-store sales in the third quarter to increase
in the low- to mid-single digits, and total sales to
be in the range of $1.71 billion to $1.75 billion.
Looking at the full year, same-store sales are
again expected to be in the low- to mid-single
digits, with total sales running between $7.36
billion and $7.45 billion. That level of sale volume is forecast to result in earnings per share
ranging from $2.45 to $2.54.
The company believes the extra week in
the current fiscal year will account for between
$120 million to $130 million in sales and seven
to eight cents earnings per share.
Dollar Tree’s earnings-per-share performance
is also likely to benefit from share repurchase
activity, although the guidance figures don’t
stock buybacks into account. During the second
quarter, the company bought back 1.6 million
shares for $80.9 million, which explains how
earnings per share increased 30.8%, while net
income increased 25.6% to $119.2 million.
Going forward, Dollar Tree has $1.1 billion
left on its share repurchase authorization, and
given the sell-off in share following the release of
second-quarter results may be more aggressive
purchaser. The company also has $380 million in
cash and investments on its balance sheet, compared with $545 million at the end of the second
quarter of 2011, with which to pursue store-expansion opportunities and infrastructure upgrades. l