Dollar Tree’s grocery business continues to grow

Despite reporting decreased business from low-income households and ongoing theft, Dollar Tree on Wednesday said it continues to see solid traffic as it expands its offering of frozen and refrigerated foods.

But the Chesapeake, Virginia-based discounter said it is undertaking a comprehensive review of its Family Dollar portfolio to “address stores that are not aligned with its transformative vision for the company.”

Same-store sales rose 3.9% for the third quarter ended Oct. 28, with a 5.4% increase at Dollar Tree and a 2% lift at Family Dollar. Traffic was up 7% at Dollar Tree and 1.4% at Family Dollar.

Sales of food and beverages rose 6.2%, while discretionary purchases such as home décor, electronics and toys were down 12.5%, Dollar Tree CEO Rick Dreiling told analysts early Wednesday.

At Family Dollar, the consumables sales mix reached a record high of 82%.

“These trends underscore how lower-income households are under increasing financial stress,” Dreiling noted.

Gross profit increased 4.9% to $2.17 billion. But Dollar Tree’s gross margin fell 20 basis points to 29.7%, fueled by a sales mix that leaned heavily on lower-margin foods and beverages, increasing theft, product cost inflation and recalls, and higher wages at distribution centers.

Related:Family Dollar to undertake $100M rebuild of Arkansas distribution center shuttered after rodent infestation

Year to date, Dollar Tree’s gross profit was flat at $6.5 billion and gross margin declined 190 basis points to 29.8%.

Dollar Tree said it added an assortment of $3-$5 frozen and refrigerated items to 920 more stores during the quarter. The grocery offerings are currently available at more than 6,500 stores, ahead of the retailer’s end-of-year target of 5,500.

“Customers are clearly responding to our expanded multi-price assortment, as our research shows us that 17% of U.S. households have purchased a multi-price product from a Dollar Tree store at least once in the past 12 months,” Dreiling said. “Importantly, these customers are adding multi-price products on top of their traditional baskets.”

Citing Nielsen data, Dollar Tree executives said the retailer gained 30 basis points of grocery market share during the third quarter.

During the third quarter, the average multi-price basket included 2.3 items priced at more than $1 and 11.6 traditional $1 products, he said.

Dollar Tree is seeing significant growth in wealthier shoppers, with most of its new customers over the last year making more than $125,000 a year, he noted.

Dollar Tree opened 197 new stores during the third quarter, including 107 Dollar Tree locations and 90 Family Dollar stores, for a total of 16,622 locations systemwide.

Related:Retail theft remains a bottom-line breaker

The retailer said it expects shrink trends to remain “unfavorable” during the fourth quarter, with an anticipated low single-digit increase in same-store sales systemwide made up for a mid-single-digit increase for Dollar Tree and a 1% decrease to 1% increase for Family Dollar.

For full-year fiscal 2023, Dollar Tree said it predicts consolidated net sales between $30.5 billion to $30.7 billion.