Categories Analysis, Retail

Dollar Tree (DLTR): A look at the discount retailer’s growth initiatives at its namesake banner

The Dollar Tree segment is expected to see comparable sales growth of 2-4% in the second quarter of 2024

Shares of Dollar Tree, Inc. (NASDAQ: DLTR) were down over 1% on Thursday. The stock has dropped 24% year-to-date. The company delivered sales and GAAP earnings growth for the first quarter of 2024 on a year-over-year basis.

One of the main highlights of the Q1 report was the discount retailer’s announcement that it was exploring strategic alternatives for its Family Dollar segment. This comes at a time when the company is working on accelerating growth at the Dollar Tree banner. Here’s a look at Dollar Tree’s initiatives for its namesake division:

Growth strategies

Dollar Tree has been working on driving growth at its namesake banner through various steps like multi-price offerings, new store openings, and accretive transactions. As part of its multi-price strategy, the company is rolling out a program called More Choices, through which it is expanding its multi-price assortment by over 300 items at price points above $1.25.

The retailer plans to stock these items in aisles throughout its stores instead of placing them in a single one, and they will be made available in around 3,000 Dollar Tree stores by the end of 2024. On its quarterly call, the company said that multi-price is about adding new items at new price points that are incremental to its core assortment. The multi-price strategy is expected to provide customers with meaningful value.

In terms of store openings, the discount store chain opened 116 new Dollar Tree stores in Q1 and converted 926 Dollar Tree stores to in-line multi-price format.

Turning to transactions, Dollar Tree has acquired 170 stores out of the 99 Cents Only bankruptcy, which it believes are highly complementary to its eponymous banner and are expected to produce sales, profits, and returns well above its portfolio average.

Quarterly performance

In Q1 2024, sales in the Dollar Tree segment increased 5% YoY to $4.2 billion. Same-store sales increased 1.7%, driven by a 2.8% growth in traffic, offset by a 1.1% drop in average ticket. Consumable comp was 7.4% while discretionary comp declined 3.2%. The discretionary decline was caused by a particularly challenging Easter.

As mentioned on its quarterly call, Easter is a major driver of discretionary demand for Dollar Tree, with Easter discretionary sales representing about 1% of its annual sales. This year, the company was left with a shorter selling season due to an early Easter and an extra week in the previous quarter. In addition, adverse weather negatively impacted the celebration, which led to dampened consumer demand across its seasonal discretionary assortment. The company also saw related softness in non-Easter discretionary categories like garden supplies and toys.

Outlook

The Dollar Tree segment is expected to see comparable sales growth of 2-4% in the second quarter of 2024. For the full year, comparable sales growth in this division is expected to be in the mid-single digits.

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