Revenue
Both Family Dollar and Dollar Tree saw strength in consumables during the quarter, with comp increases of 4% and 7.9% respectively. The discretionary category was impacted by inflationary pressures with comps declining 4.1% in Family Dollar. Dollar Tree recorded a comps growth of 6.7% in discretionary despite the helium shortage hurting the sales of balloons and other party products.
The helium shortage continues to impact Dollar Tree’s sales in the party department. In addition, the over-the-counter categories are being impacted by supply chain challenges. The company has revised its sales guidance for the full year of 2022 to a range of $27.85-28.10 billion from the previous range of $27.76-28.14 billion. Comparable store sales are expected to increase in the mid-single digits for the year.
For the third quarter of 2022, consolidated net sales are expected to be $6.75-6.87 billion while same-store sales are expected to increase in the mid-single digits.
Profitability and margins
Dollar Tree’s net income increased 27.4% to $359.9 million while EPS rose over 30% to $1.60 in Q2 compared to last year. Gross margin improved 200 basis points to 31.4%. Due to inflation, customer preferences have shifted more towards consumables and this is impacting margins through product mix. These inflationary pressures, along with competitive pricing, are expected to impact gross margins in the near term.
Dollar Tree reduced its EPS guidance for the full year of 2022 to reflect its planned pricing investments at Family Dollar, the shift towards low-margin consumable goods and higher cost inflation. EPS is now expected to range between $7.10-7.40 versus the prior range of $7.80-8.20. For the third quarter of 2022, EPS is expected to be $1.05-1.20.
Capex
Capital expenditures were $276.2 million in Q2 2022. For FY2022, consolidated capital expenditures are estimated to be approx. $1.4 billion.
Click here to read the full transcript of Dollar Tree’s Q2 2022 earnings conference call