Dollar Tree, Inc. Reports Results for the Second Quarter Fiscal 2023

• Same-Store Sales: Dollar Tree +7.8%; Family Dollar +5.8%; Enterprise +6.9%
• Comparable Transaction Count: Dollar Tree +9.6%; Family Dollar +3.4%
• Diluted Earnings per Share (EPS) $0.91
• Increasing Fiscal 2023 Sales Outlook Range to $30.6 Billion to $30.9 Billion
• Tightening Fiscal 2023 Diluted EPS Outlook Range to $5.78 to $6.08, Including $0.12 per Share Legal Reserve from Q1 2023

Dollar Tree, Inc. (NASDAQ: DLTR) today reported financial results for its second quarter ended July 29, 2023.

“At our June Investor Conference we shared the details of our strategy to transform the company and unlock the true value of our business, and our second quarter results show us making solid progress against these objectives. Both the Dollar Tree and Family Dollar segments reported strong same-store sales trends, driven by increased traffic and accelerated market share gains,” said Rick Dreiling, Chairman and Chief Executive Officer. “We are delivering on our strategy through the dedication of our 200,000+ associates who are focused on providing an exceptional experience for our customers.”

“In the second quarter we continued to generate strong top-line results across both segments. While factors like sales mix and elevated shrink continue to pressure margins, we generated a year-over-year increase in gross profit dollars. We are pleased with the progress of our transformation to date and remain confident in our ability to deliver our growth objective of $10 or more of diluted EPS by 2026,” stated Jeff Davis, Chief Financial Officer.

Additional Business Highlights

• Opened 118 new stores
• Expanded multi-price Plus offering to 715 additional Dollar Tree stores
• Added $3, $4, and $5 frozen and refrigerated items to 1,645 additional Dollar Tree stores
• Completed 276 Family Dollar store renovation projects
• Established $1.5 billion commercial paper program
• Net cash provided by operating activities increased $189.7 million compared to Q2 2022
• Improved free cash flow by $40.5 million compared to Q2 2022

Second Quarter Results

Unless otherwise noted, all comparisons are between the 13 weeks ended July 29, 2023, and the 13 weeks ended July 30, 2022.

Consolidated net sales increased 8.2% to $7.32 billion. Enterprise same-store sales increased 6.9%. Dollar Tree same-store sales increased 7.8%, driven by a 9.6% increase in traffic, partially offset by a 1.6% decline in average ticket. Family Dollar’s 5.8% same-store sales increase was comprised of a 3.4% increase in traffic along with a 2.3% increase in average ticket.

Gross profit increased 0.5% to $2.13 billion and gross margin declined 220 basis points to 29.2%. The prior year’s quarter included an outsized margin benefit from the initial transition to the $1.25 price point at Dollar Tree. The gross margin decline was driven by lower initial mark-on, unfavorable sales mix, elevated shrink, and wage investments in distribution center payroll, partially offset by lower freight costs.

Selling, general and administrative expenses were 25.3% of total revenue, compared to 24.0%. The increase was primarily due to wage investments in store and field payroll, higher incentive compensation, investments in repairs and maintenance to improve store standards, higher professional fees, elevated general liability insurance claims, and higher utilities expenses related to unseasonably high temperatures throughout much of the country, partially offset by sales leverage.

Operating income was $287.8 million and operating margin was 3.9%.

The Company’s effective tax rate was 24.0%, compared to 24.2%.

Net income was $200.4 million and diluted EPS was $0.91.

The Company repurchased 703,713 shares for $99.9 million, including applicable excise tax.

Year-to-Date Results

Unless otherwise noted, all comparisons are between the 26 weeks ended July 29, 2023, and the 26 weeks ended July 30, 2022.

Consolidated net sales increased 7.1% to $14.64 billion. Enterprise same-store sales increased 5.9%. Dollar Tree same-store sales increased 5.6%, driven by a 7.7% increase in traffic, partially offset by a 1.9% decline in average ticket. Family Dollar’s 6.2% same-store sales increase was comprised of a 3.9% increase in traffic along with a 2.3% increase in average ticket.

Gross profit decreased 2.2% to $4.37 billion and gross margin declined 290 basis points to 29.8%.

Selling, general and administrative expenses were 25.0% of total revenue, compared to 23.7%.

Operating income was $707.5 million and operating income margin was 4.8%.

The Company’s effective tax rate was 24.0% compared to 23.5%.

Net income was $499.4 million and diluted EPS was $2.26.

The Company repurchased 1,728,713 shares for $252.0 million, including applicable excise tax.

Updated Fiscal 2023 Outlook

“We are bringing in the high and low end of our outlook range for diluted EPS to better reflect the balance of opportunities and risks we see in the current operating environment. Our outlook takes into consideration several factors including shifting sales mix, unfavorable shrink trends, higher diesel fuel prices, incremental savings on ocean freight, and our improved sales performance,” Davis added.

Fiscal 2023 Outlook

Consolidated net sales for full-year fiscal 2023 are now expected to range from $30.6 billion to $30.9 billion. The Company expects to deliver a mid-single-digit comparable store sales increase for the year, comprised of a mid-single-digit increase in the Dollar Tree segment and a mid-single-digit increase in the Family Dollar segment. Selling square footage is expected to grow by 3.0% to 3.5% for the year, with new store growth back-end weighted. Diluted EPS is expected to range from $5.78 to $6.08, including the $0.12 charge for the legal reserve taken in the first quarter and the impact of the 53^rd week in fiscal 2023.

Third Quarter 2023 Outlook

The Company expects consolidated net sales for the third quarter will range from $7.3 billion to $7.5 billion, based on a mid-single-digit increase in same-store sales for the enterprise, and for the Dollar Tree and Family Dollar segments. Diluted EPS for the quarter is estimated to be in the range of $0.94 to $1.04.

While share repurchases are not included in the outlook, the Company had $1.6 billion remaining under its share repurchase authorization as of July 29, 2023.

Conference Call Information

On Thursday, August 24, 2023, the Company will host a conference call to discuss its earnings results at 8:00 a.m. Eastern Time. The telephone number for the call is 877-407-3943. A recorded version of the call will be available until midnight Wednesday, September 30, 2023, and may be accessed by dialing 877-660-6853. The access code is 13740375. A webcast of the call is accessible through Dollar Tree's website and will remain online through Thursday, August 31, 2024.

Supplemental financial information for the second quarter is available on the Investor Relations portion of the Company’s website, at www.Corporate.DollarTree.com/Investors.

Dollar Tree, a Fortune 200 Company, operated 16,476 stores across 48 states and five Canadian provinces as of July 29, 2023. Stores operate under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada. To learn more about the Company, visit www.DollarTree.com.

Use of Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). From time-to-time, the Company supplements the reporting of its financial information determined under GAAP with certain non-GAAP financial information. The non-GAAP financial measures included in this press release are adjusted operating income, adjusted diluted earnings per share (EPS), adjusted net income, and adjusted operating income (Family Dollar segment), each of which excludes the impact of a $30 million accrual related to previously disclosed legal proceedings associated with our West Memphis, Arkansas distribution center, and free cash flow.

A reconciliation of the non-GAAP financial measures to the corresponding amounts prepared in accordance with GAAP appears in the table “Reconciliation of Non-GAAP Financial Measures” below. The table provides additional information regarding the adjusted measures.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS: Our press release contains "forward-looking statements" as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they address future events, developments or results and do not relate strictly to historical facts. Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements preceded by, followed by or including words such as: “believe”, “anticipate”, “expect”, “intend”, “plan”, “view”, “target” or “estimate”, “may”, “will”, “should”, “predict”, “possible”, “potential”, “continue”, “strategy”, and similar expressions. For example, our forward-looking statements include statements relating to our business and financial outlook for fiscal 2023, including without limitation our expectations regarding net sales, comparable store sales and diluted earnings per share for the third fiscal quarter and full fiscal year 2023, and various factors that are expected to impact our quarterly and annual results of operations for fiscal 2023; our selling square footage and new store growth; our plans and expectations regarding our business, including the impact of various initiatives and investments on the company’s performance and prospects for long-term growth; our earnings per share objective for fiscal 2026; and our other plans, objectives, expectations (financial and otherwise) and intentions. These statements are subject to risks and uncertainties. For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections in our Annual Report on Form 10-K filed March 10, 2023, our Form 10-Q for the most recently ended fiscal quarter and other filings we make from time to time with the Securities and Exchange Commission. In addition, we can provide no assurances that we will not be required to accrue additional amounts in future periods with respect to legal proceedings related to our West Memphis, Arkansas distribution center. We are not obligated to release publicly any revisions to any forward-looking statements contained in this press release to reflect events or circumstances occurring after the date of this report and you should not expect us to do so.

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