Dollar Chains Tout Profit Growth in Q2, Even as Trips Decline

Rival dollar stores Dollar General and Dollar Tree this week reported sales and profit benefits from consumer behavior changes during the pandemic, even as growth of food and consumables appears to be retreating somewhat along with store trips.

In his first public remarks since taking the reigns as Dollar Tree CEO, Mike Witynski said “it was a new day” for the retailer’s long underperforming Family Dollar concept as a focus on discretionary purchases at discount prices highlighted a sharp increase in quarterly same-store sales. High-flying rival Dollar General posted still-stronger results.

Chesapeake, Va.-based Dollar Tree, which also operates the single-price-point Dollar Tree chain, said consolidated sales for the fiscal second quarter ending Aug. 1 increased by 9.4% to $6.3 billion, with comps gaining by 7.2%, reflecting 11.6% comps at Family Dollar and 3.1% at Dollar Tree.

Dollar General, Goodlettsville, Tenn., in the meantime, posted a 24.4% sales gain in its second quarter, totaling $7 billion in sales and 18.8% comps, it too benefitting from higher discretionary sales sparked to a degree by federal stimulus spending and shoppers that are tending to buy more goods on fewer trips to the store.

Both companies saw healthy gains in gross-profit margins as initial markups were higher, markdowns were fewer, and the mix of sales shifted back to higher-margin discretionary goods following years of outsized growth from respective expanding food and consumables businesses. At Dollar Tree, that was the only category that failed to register faster growth than it had a year ago, reflecting how share in the grocery business has retreated somewhat from so-called alternative channels in recent months, coinciding with declines in the frequency of visits to such stores.

Witynski, a longtime executive with grocery distributor Supervalu and a former president of its Shaw’s supermarket chain, was promoted last month to CEO of Dollar Tree following the retirement of Gary Philbin. He said Dollar Tree is only now overcoming some of the supply chain issues that erupted in the early weeks of the pandemic.

“On the consumables side, [supply shortages are] really anything to do with paper and cleaning,” he said during a conference call, according to a Sentieo transcript. “So specifically, paper towels as people continue to enhance their protocols at home, or wherever they’re at with cleaning; any chemical with a kill claim; any hand sanitizer—there is still a lot of pressure on meeting the needs of the customer."

Witynski, in the meantime, said he was encouraged by consumer behavior exhibited elsewhere in the store, saying strength in sales of goods such as apparel, home goods and other discretionary categories continued even after many shoppers spent federal stimulus money—a signal of shoppers’ faith in values. “As customers needed value and convenience and safety, they continue to shop at Dollar Tree and at Family Dollar,” he said. “So we feel good about our comps toward the end of the quarter and going into the third quarter. And from the basket and transaction size, we seeing they are shopping with a purpose.”

At Dollar General, progress in how the company sources food through its DG Fresh initiative to self-distribute helped to improve its profit profile as gross margins grew to 32.5% of sales in the quarter, officials said. Cost savings for fresh and frozen food turned into higher initial markups while in-stock level improved and new items reached stores. Dollar General is now distributing to 12,000 stores from eight distribution facilities, CEO Todd Vasos said.