While Dollar Tree said March 6 its sales for the fourth quarter of fiscal 2018 were “strong,” the Chesapeake, Virginia-based discount variety store retailer also reported that on the heels of closing 84 Family Dollar stores last year, it will close as many as 390 this year.
In addition, about 200 Family Dollar stores will be rebannered as Dollar Tree.
President and CEO Gary Philbin said, “Our results demonstrate the increasing strength of the Dollar Tree brand, and accelerated progress on the Family Dollar turnaround, as Family Dollar delivered its strongest quarterly same-store sales growth of the year.”
Family Dollar’s same-store sales were up 1.4 percent while Dollar Tree’s were up 3.2 percent in the fourth quarter.
Philbin continued, “We are confident in our progress and we have good momentum. Our merchants at both banners have delivered a 2019 plan that we believe overcomes most of the effect of tariffs at the 25 percent level and provides opportunity for margin improvements if tariffs are not increased.”
Dollar Tree closed the 84 Family Dollars in the fourth quarter—37 more than originally planned for the year—and will renovate at least 1,000 Family Dollar stores this year, Philbin added.
The renovations, as well as new Family Dollar stores, will follow a model that was developed through experimentation and testing, Dollar Tree said. The concept, known internally as H2, has “significantly improved merchandise offerings, including Dollar Tree $1.00 merchandise, throughout the store,” the company said. “H2 has produced increased traffic and provided an average comparable store sales lift in excess of 10 percent over control stores.
“H2 performs well in a variety of locations, and especially in locations where Family Dollar has in the past been the most challenged,” Dollar Tree added.
Adult beverages will be installed in approximately 1,000 stores, and freezers and coolers will be expanded in approximately 400 stores.
After its 1,000 remodels this year, Family Dollar will be on “an accelerated renovation schedule in future years,” the retailer says.
This fiscal year, Dollar Tree says it is seeking to obtain material rent concessions from landlords on underperforming stores. Without such concessions, the company expects to accelerate its pace of Family Dollar store closings to as many as 390 stores in fiscal 2019, compared to the banner’s normal annual closing cadence of approximately 75 stores.
“The actions taken in 2019 under the Store Optimization Program alone are expected to provide a comparable store sales lift of up to 1.5 percent once they have been implemented by the end of fiscal 2019,” Dollar Tree said.
And while Dollar Tree believes its namesake banner “has one of the most unique, differentiated and defensible brand concepts in all of value retail” and it “will not undermine this important value proposition for customers, testing new initiatives is an essential component of the company’s ability to evolve and provide the best customer experience, including multi-price point testing, which has been done on prior occasions.
“The ability to test multi-price points is enhanced by Family Dollar,” Dollar Tree says. “The merchandise team at Family Dollar has the expertise and purchasing power to purchase high value multi-price merchandise for these test stores.”
In fiscal 2019, the company plans to open 350 new Dollar Tree and 200 new Family Dollar stores in addition to the 200 Family Dollar stores rebannered to Dollar Tree.
Consolidated Virginia HQ coming in July
Dollar Tree acquired Family Dollar in July 2015.
“Since the merger, we have prepaid $4.3 billion of debt, captured significant synergies in both brands, and fully integrated most systems, functions and departments across banners,” Philbin said. “By July, we will complete the most important phase: unifying our headquarters under one roof in Virginia. With these improvements behind us coupled with an investment grade debt rating and expected operating cash flow, before capital expenditures, of approximately $2.0 billion in 2019, we are in an ideal spot to accelerate our initiatives to position the Family Dollar and Dollar Tree banners for success.”
Nearly all systems, functions and departments at Family Dollar and Dollar Tree have been substantially integrated, with the primary exceptions of merchandising, store operations and loss prevention, according to Dollar Tree.
Real estate, supply chain, strategic planning, global sourcing, information technology, store development, finance, human resources, inventory management, and legal have been integrated to a significant degree. These integrations have resulted in annual savings exceeding $50 million, with another $15 million in expected annual savings upon completion of campus consolidation, the retailer said.
More on the results
Consolidated net sales for the 13-week fourth quarter 2018 were $6.21 billion vs. $6.36 billion in the prior year’s 14-week fourth quarter. Excluding $406.6 million of sales from the extra week in the prior year’s quarter, consolidated net sales increased 4.2 percent.
During the quarter, the company opened 143 stores, expanded or relocated 14 stores, and closed 84 Family Dollar stores and 10 Dollar Five Dollar Tree stores were rebannered from Family Dollar.
For the 52-week 2018 fiscal year, consolidated net sales increased 2.6 percent to $22.82 billion from $22.25 billion in the 53-week fiscal 2017. Excluding $406.6 million of sales from the prior year’s 53rd week, consolidated net sales increased 4.5 percent. Enterprise same-store sales increased 1.7 percent. Same-store sales for the Dollar Tree banner increased 3.3 percent. Same-store sales for the Family Dollar banner increased 0.1 percent.
Philbin concluded, “Our Dollar Tree business has continued to perform extremely well. It’s a concept our customers love, as validated by our streak of 44 consecutive quarters of comp sales growth. We are confident we are taking the appropriate steps to reposition our Family Dollar brand for increasing profitability as business initiatives gain traction in the back half of fiscal 2019. Improving the consistency of execution and optimizing our real estate portfolio will contribute to a meaningful improvement in our shoppers’ in-store experience and store traffic. We believe we are well-positioned to capture the significant opportunity ahead of us as we focus on creating and driving value for our shareholders.”