DollarTree(G)-1000.jpg Joe Raedle/Staff/Getty Images News

Dollar Tree beats estimates on margin expansion

Family Dollar comps turn positive, but still “work in progress,” CEO says

Earnings at Family Dollar Stores improved by 40.5% in the fourth quarter, officials said Wednesday, helped in part by positive comparable store sales at both its Dollar Tree and Family Dollar divisions and a strong improvement in margins.

Family Dollar, which had been struggling since before being acquired by Dollar Tree in 2015, posted a 0.2% comp gain in the period, which ended Jan. 28. Dollar Tree comps improved by 2.3% as overall sales improved 5% to $5.6 billion. Net earnings for the period increased to $92.8 million, and earnings per share of $1.39 surpassed Wall Street’s expectations of $1.32.

As a percent of sales, gross margin increased to 32.1% compared to 30.8% in the prior year. The improvement was driven primarily by lower merchandise and freight costs, the company said.

In a conference call discussing results, CEO Bob Sasser said cleaner stores and improved preparedness to serve lower income shoppers helped the Family Dollar division turn positive comps, but he stressed it was still a work in progress with traffic down slightly in the quarter. Family Dollar offers discounted goods at multiple price points, while Dollar Tree offer a single $1 ($1.25 in Canada) price point.

“Our in-stocks, what our customer sees on the shelf, is certainly better than where we started 18 months ago,” Sasser said of Family Dollar. “And our efforts to catch up on some of the deferred maintenance and cleaning and the basics that we need to run a full, clean, recovered store are in place.

“For our customers, it really revolves around are we first-of-the-month ready at Family Dollar? And that's a very important focus for us to gain consistency with our customer, and it tended to show up with our first-of-the-month business and our share of SNAP that we take.”

Consumables drove comps at Family Dollar, while Dollar Tree’s comps befitted form a balance of consumable and discretionary categories.

Despite the strong quarter, officials provided a conservative outlook for the year ahead with flat to low-single digits comps and earnings growth tempered by expectations of higher import, freight and labor costs.

The company expects capital expenditures to range from $760 million to $780 million, with 3.9% square footage growth.

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