Dollar Tree plans to close about 1,000 stores

In reporting financial results for its fourth quarter, which ended in February, Rick Dreiling chairman and CEO, said the company finished the year strong, with fourth quarter results reflecting positive traffic trends, market share gains and adjusted margin improvement across both segments. 

“While we are still in the early stages of our transformation journey, I am proud of what our team accomplished in 2023 and see a long runway of growth ahead of us. As we look forward in 2024, we are accelerating our multi-price rollout at Dollar Tree and taking decisive action to improve profitability and unlock value at Family Dollar,” Dreiling said.

Chief Financial Officer Jeff Davis added, “As an organization, we continue to execute at a high level. Our core operating performance was strong in the fourth quarter, despite some unanticipated developments related to general liability claims.”

Dollar Tree reported that it opened 219 new stores in the fourth quarter, bringing full-year new store openings to 641.

The company also noted that $3 and $5 center-store merchandise is available at approximately 5,000 Dollar Tree stores; $3, $4 and $5 frozen and refrigerated items are available at more than 6,500 Dollar Tree stores; net cash provided by operating activities increased $1.07 billion in FY 2023; and the company increased free cash flow by $217.2 million compared to FY 2022.

Dollar Tree’s consolidated net sales increased 11.9% to $8.63 billion. Enterprise same-store net sales increased 3%, driven by a 4.6% increase in traffic. The increase was partially offset by a 1.5% decline in average ticket, the company said. 

Dollar Tree same-store net sales increased 6.3%, driven by a 7.1% increase in traffic. The increase was partially offset by a .7% decline in average ticket. Family Dollar’s same-store net sales decreased 1.2%, driven by a .7% increase in traffic, partially offset by a 2% decline in average ticket, the company said.

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Dollar Tree’s gross profit increased 16.2% to $2.77 billion and gross margin expanded 120 basis points to 32.1%. Gross margin expansion was driven by lower freight costs, sales leverage, the impact of the 53rd week in fiscal 2023 and higher allowances, offset by product cost inflation, unfavorable sales mix, elevated shrink and higher distribution and markdown costs. On a non-GAAP basis, which excludes distribution and markdown costs related to the store portfolio optimization review, adjusted gross profit increased 19.8% to $2.86 billion and adjusted gross margin expanded 220 basis points to 33.1%.

The company reported its operating loss was $1.89 billion and operating margin was -21.9%. On a non-GAAP basis, adjusted operating income increased 21.2% to $749. million and adjusted operating margin expanded 70 basis points to 8.7%.

Net loss was $1.71 billion and diluted loss per share was $7.85. On a non-GAAP basis, adjusted net income was $555.7 million and adjusted diluted EPS was $2.55. Adjusted diluted EPS reflects approximately 17 cents of net negative impact, primarily related to unfavorable development of general liability insurance claims.

Year-to-Date Results:

Unless otherwise noted, all comparisons are between the 53 weeks ended Feb, 3, 2024, and the 52 weeks ended Jan. 28, 2023.

Consolidated net sales increased 8% to $30.6 billion. Enterprise same-store net sales increased 4.6%. Dollar Tree same-store net sales increased 5.8%, driven by a 7.4% increase in traffic, partially offset by a 1.5% decline in average ticket. Family Dollar’s 3.2% same-store net sales increase was comprised of a 2.5% increase in traffic along with a .7% increase in average ticket.

Gross profit increased 4.3% to $9.31 billion and gross margin declined 110 basis points to 30.4%. The decline in gross margin was driven by elevated shrink, product cost inflation, unfavorable sales mix and higher distribution and markdown costs. The decline was partially offset by lower freight costs, sales leverage and the impact of the 53rd week in fiscal 2023. On a non-GAAP basis, which excludes distribution and markdown costs related to the store portfolio optimization review, adjusted gross profit increased 5.3% to $9.40 billion and adjusted gross margin declined 80 basis points to 30.7%.

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Operating loss was $881.8 million and operating margin decreased 1,080 basis points to -2.9%. On a non-GAAP basis, adjusted operating income decreased 20% to $1.79 billion and adjusted operating margin decreased 210 basis points to 5.8%.

Net loss was $998.4 million and diluted loss per share was $4.55. On a non-GAAP basis, adjusted net income was $1.29 billion and adjusted diluted EPS was $5.89. Adjusted diluted EPS reflects approximately 24 cents of net negative impact, primarily related to unfavorable development of general liability claims. 

During the fourth quarter of fiscal 2023, the company announced that it had initiated a comprehensive store portfolio optimization review which involved identifying stores for closure, relocation or re-bannering based on an evaluation of current market conditions and individual store performance, among other factors. 

As a result of this review, the company said it plans on closing approximately 600 Family Dollar stores in the first half of fiscal 2024. Additionally, approximately 370 Family Dollar and 30 Dollar Tree stores will close over the next several years at the end of each store’s current lease term. 

In reporting first quarter and fiscal 2024 outlook, Davis said, “We are introducing an initial fiscal 2024 EPS outlook of $6.70 to $7.30. While we expect current shrink and mix levels to be a headwind in the first half of the year, we are expecting to benefit from favorable freight rates and moderating headwinds from reduced SNAP benefits throughout the year. We are making solid progress on our key growth initiatives and are encouraged by the early results of our business transformation efforts."

Consolidated net sales for full-year fiscal 2024 are expected to range from $31 billion to $32 billion. The company expects to deliver a low-to-mid-single digit comparable store net sales increase for the year, comprised of a mid-single-digit increase in the Dollar Tree segment and a low-single-digit increase in the Family Dollar segment. Diluted EPS is expected to range from $6.70 to $7.30.

“Our fiscal 2024 outlook reflects approximately 15 cents of EPS benefit from the anticipated Family Dollar store closures, mostly in the second half of the year as we close underperforming stores throughout the first half of fiscal 2024,” the company said. 

Dollar Tree expects consolidated net sales for the first quarter will range from $7.6 billion to $7.9 billion, based on a low-to-mid-single digit increase in same-store sales for the enterprise and the Dollar Tree segment and approximately flat same-store sales growth for the Family Dollar segment. Diluted EPS for the quarter is estimated to be in the range of $1.33 to $1.48.