DLTR Sales Rise, Though Weakness Persists in FDO Banner

Wall St. Journal

Sarah Nassauer & Kimberly Chin

Nov 29, 2018

Dollar Tree Inc. DLTR -1.88% said Thursday sales rose in the latest quarter, as the company works to convince investors that weakness at its Family Dollar chain won’t last.

Sales at Dollar Tree, which owns both the Dollar Tree and Family Dollar chains, rose 4.2% to $5.54 billion in the quarter ended Nov. 3, but weaker sales at existing Family Dollar stores dragged down the company’s otherwise strong performance.

Same-store sales rose 2.3% at Dollar Tree, but sales at stores open at least a year under the Family Dollar banner fell 0.4%.

More than three years ago, Dollar Tree beat out competitor Dollar General Corp. DG 0.09% to buy Family Dollar for nearly $9 billion in cash and stock. Since then Family Dollar has proved hard to turn around, reporting weak sales each quarter since the acquisition.

However, Dollar Tree’s stock rose 5.3% to $87.73 at midday Thursday, as some investors cheered the company’s more aggressive plan to renovate Family Dollar stores.

The company plans to finish around 500 Family Dollar renovations this fiscal year, at least 1000 next year, and another 1000 the following year, Chief Executive Gary Philbin said in an interview Thursday. “Over time that gives us an inflection point on the business” at Family Dollar, said Mr. Philbin.

Dollar Tree’s stock has fallen 22% so far this year.

The company also plans to close some Family Dollar stores, but Mr. Philbin declined to provide the number of stores likely to close.

Management sounds more confident in its ability to improve Family Dollar, but the challenges remain fundamentally the same, said Gordon Haskett analyst Chuck Grom in a research note. “Did we learn something today that we didn’t know 24 hours ago? In our view, not really.” Fixing the chain will likely require more investment, said Mr. Grom.

The company also lowered its sales guidance for the current year. It expects sales in the range of $22.72 billion to $22.83 billion, compared with its previous forecast of between $22.75 billion and $22.97 billion. The range for earnings was narrowed to between $4.86 and $4.95 a share, compared with $4.85 to $5.05 a share as previously guided.

In the third quarter, profit rose 5.1% to $281.8 million, or $1.18 a share, compared with analysts’ expectations of $1.14 a share.

Many retailers have reported stronger sales in the most recent quarter, pointing to fairly robust consumer confidence and improving efforts to grow online, including Walmart Inc., Target Corp. andMacy’s Inc.

Dollar stores have generally fared well since the recession, benefiting as more shoppers flocked to inexpensive products. In recent years Family Dollar stores haven’t grow sales in line with competitors.

The large chains target slightly different customers. Dollar Tree stores are mostly in suburban locations and sell all items for $1. Dollar General has more rural locations and aims to attract low-income shoppers by selling frequently purchased products at different price points. Family Dollar aims to attract similar low-income shoppers, but nearly half of its stores are in urban locations. Including Family Dollar outlets, Dollar Tree has about 15,000 U.S. stores, roughly equal with Dollar General.