Dollar Tree slumps to start the fiscal year

The Dollar Tree believes it is cashing in on the prepared food craze by offering an expanded variety of frozen meals. However, the increase in cooler space was not enough to keep the discount retailer from avoiding a first quarter without much sales heat.

The financial results were mixed for the Dollar Tree, with a slant toward negative, according to CNBC reporting. Total revenue was just over $7.3 billion, which is a shy better than the projected $7.28 billion. The news, however, sent Wall Street in a tailspin as the retailer’s stock declined 12% on Thursday.

The results were worse for net income during the first three months of the year. The Dollar Tree reported Q1 net income of $299 million compared to just over $536 million in the first quarter of 2022.

Expected same store sales were set at 3.6%, and there the Dollar Tree exceeded the goal at 4.8%. Gross margins also declined 3.4 percentage points to 30.5%.

CEO Rick Dreiling attributed the sluggish start to an elevated shrink inventory, which includes stolen items. Last week, Target CEO Brian Cornell blamed theft for a loss of $500 million.

“While we are seeing early results from our initiatives, we are not immune to the external pressures affecting all of retail,” said Dreiling.

“We are adjusting our EPS outlook as we expect the elevated shrink and unfavorable sales mix to persist through the balance of the year. We still expect earnings to be more back-end loaded this year as the benefits of lower ocean freight rates flow through.

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“We have aggressively expanded our product assortment at Dollar Tree stores with $3, $4, and $5 frozen and refrigerated products, adding 3,500 stores last year alone on this initiative,” Dreiling said. “Both our Dollar Tree Plus and our multi-price frozen assortments drive incremental sales, with the average ticket more than doubling at stores that we have added this expanded offering. Consumers are clearly responding, and these sales-driving initiatives are already having a measurable impact on our results.” 

Still, the retailer is not retreating on projected net sales for the entire fiscal year, which falls in the $30 billion range. Comparable store sales should be up low to mid-single digits. The positive results are expected to show more towards later in the year, as the Dollar Tree expects the second quarter to resemble the first quarter.

The Dollar Tree recently reset its direction, and in turn its strategy. Dreiling, who was an exec with Dollar General, came aboard as CEO in January. Before that, Jeffrey Davis was named the company’s new chief financial officer.

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Prices also have been on the rise at the Dollar Tree. Most items now go for $1.25, and frozen food meals can sell for as high as $5.

Family Dollar, part of the Dollar Tree network, is currently experiencing a complete overhaul so it can match the shopping experience of discount stores like Aldi.