Dollar Tree Company plans to add adult beverage products in approximately 1,000 Stores.

CHESAPEAKE, Va.--(BUSINESS WIRE)--May 30, 2019-- Dollar Tree, Inc. (NASDAQ: DLTR), North America's leading operator of discount variety stores, today reported financial results for its first quarter ended May 4, 2019.

“I am proud of our team’s efforts throughout the first quarter,” stated Gary Philbin, President and Chief Executive Officer. “Dollar Tree delivered a solid 2.5% increase in same-store sales while cycling its toughest quarterly compare from the prior year; and Family Dollar again demonstrated a sequential acceleration in comp sales. Family Dollar’s 1.9% same-store sales increase is the strongest quarterly performance since we began reporting Family Dollar comps.”

Philbin continued, “Dollar Tree continues to be a destination for customers looking for great values and convenience, as demonstrated by our 45th consecutive quarter of delivering an increase in same-store sales. And, we are excited to kick off the initial introduction of Dollar Tree Plus! multi-price point products into select test stores. These products are designed to provide our shoppers with More Choices, More Sizes, and More Savings. We are in the process of expanding this test to more than 100 Dollar Tree stores. Importantly, our Family Dollar turnaround is gaining traction. Our efforts to accelerate initiatives to optimize the real estate portfolio are making a difference as demonstrated by our improving same-store sales results. As previously communicated, these efforts will increase costs in the first half of fiscal 2019, and will then contribute to the opportunity for operating margin expansion as we work through the back half of this year.”

Press Release....

First Quarter Results

Consolidated net sales increased 4.6% to $5.81 billion from $5.55 billion in the prior year’s first quarter. Enterprise same-store sales increased 2.2%. Same-store sales for the Dollar Tree banner increased 2.5% on a constant currency basis (or 2.4% when adjusted to include the impact of Canadian currency fluctuations). Same-store sales for the Family Dollar banner increased 1.9%.

Gross profit increased 1.6% to $1.73 billion in the quarter compared to $1.70 billion in the prior year’s first quarter. As a percentage of sales, gross margin decreased to 29.7% compared to 30.6% in the prior year. The decrease in gross profit margin was driven by lower initial markup at Family Dollar, higher domestic freight and distribution costs, shrink in the Family Dollar segment, and $6.7 million, or $0.02 per diluted share, of increased occupancy costs related to the accelerated rent expense for Family Dollar stores scheduled to close in 2019, as a result of the implementation of the new leasing standard, ASC 842.

Selling, general and administrative expenses were 23.1% of sales compared to 22.7% of sales in the prior year's first quarter. The increase was driven by operating and corporate expenses related to the consolidation of our store support centers, payroll costs related to our investment in store hourly payroll, and higher legal fees, partially offset by lower depreciation and amortization costs as a percentage of sales.

Operating income for the quarter was $385.5 million compared with $437.6 million in the same period last year and operating income margin was 6.6% in the current quarter compared to 7.9% in last year’s quarter.

The Company's effective tax rate for the quarter was 22.1% compared to 22.6% in the prior year’s first quarter.

Net income compared to the prior year’s quarter increased $107.4 million to $267.9 million and diluted earnings per share increased 67.2% to $1.12 compared to $0.67 in the prior year’s quarter. The prior year’s quarter included $0.52 per diluted share of debt refinancing costs. Excluding the $6.7 million in accelerated rent expense related to ASC 842, which was not included in the Company’s previous outlook, adjusted diluted earnings per share for the quarter was $1.14.

The Company repurchased 960,683 shares during the quarter for $100 million. The Company has $900 million remaining on its share repurchase authorization plan.

During the quarter, the Company opened 91 stores, expanded or relocated 11 stores, and closed 16 Family Dollar stores and nine Dollar Tree stores. Additionally, the Company opened 45 Dollar Tree stores that were re-bannered from Family Dollar. Retail selling square footage at quarter end was approximately 120.4 million square feet.

Family Dollar Update

Store Optimization Program Update

As announced in March 2019, the Company is currently executing a store optimization program for its Family Dollar stores to improve performance. Detailed below is an update on this initiative:

• The Company is rolling out a new model for both new and renovated Family Dollar stores, referred to as H2. The Company tested the H2 model in 2018 with positive results. The H2 model has improved merchandise offerings, including Dollar Tree$1 merchandise sections, an expanded party assortment and an expanded number of freezer and cooler doors. H2 stores are delivering increased traffic with average comparable store sales increases of greater than 10%. H2 stores perform well in a variety of locations, and especially in locations where Family Dollar has been most challenged in the past. The Company entered fiscal 2019 with approximately 200 H2 stores and, as of May 4, 2019, had approximately 550 H2 stores. The Company plans to renovate at least 1,000 stores in fiscal 2019.

• The Company is taking action to close under-performing stores. The normal cadence of Family Dollar store closings on an annual basis is approximately 75 stores. In fiscal 2019, as previously announced, we expect to close as many as 390 stores, the majority of which will take place in the second quarter.

• The Company plans to re-banner approximately 200 Family Dollar stores to the Dollar Tree brand in fiscal 2019.

• Additionally, the Company plans to add adult beverage product in approximately 1,000 Family Dollar stores and expand freezers and coolers in approximately 400 Family Dollar stores in fiscal 2019. In the first quarter, adult beverage product was added to approximately 45 stores and freezers and coolers were expanded in approximately 55 stores.

Integration Update

The Company continues to be on track with the consolidation of its store support centers. This represents an important final step in the Company’s integration, which is scheduled to be completed in July 2019. The Company expects this consolidation will greatly enhance the communication, collaboration and teamwork within the organization and its ability to support the ongoing growth and development of the Dollar Tree and Family Dollar brands.

Dollar Tree Plus! Multi-Price Point Test Update

As previously disclosed in the Company’s Fourth Quarter and Fiscal Year 2018 earnings announcement, the Company has recently initiated a test of multi-price points, currently referred to as Dollar Tree Plus!, at an expanding number of Dollar Tree store locations. This carefully considered test, leveraging the merchandising strength and purchasing power of Family Dollar, is designed to understand how Dollar Tree’s deeply-loyal customers respond to the addition of merchandise at values greater than $1.

The Company conducted extensive planning during the first quarter 2019, including store selection and merchandising for the test. In mid-May, the Company introduced Dollar Tree Plus! merchandise into the first stores. The initial test phase is planned to be expanded to more than 100 urban, suburban and rural Dollar Tree store locations.

As the Company tests lifting the restriction on the $1 price point, it is not raising retail on its current assortment of items priced at $1. Customers will see new Dollar Tree Plus! items added to the Dollar Tree offering, providing them with great values and “More Choices, More Sizes, and More Savings.”

Philbin continued, “With its ‘Everything’s a Dollar’ model, Dollar Tree has remained one of the most unique, differentiated and defensible brand concepts in all of value retail. However, we have always been a ‘test-and-learn’ organization that is committed to evaluating all opportunities to deliver great value for our customers while driving long-term value creation. During this test, we look forward to measuring and assessing the initial results and understanding if the introduction of multiple price points across a broader set of stores is in the best interests of our customers, Company and shareholders.”