The company posted third-quarter results Wednesday (Dec. 3) that showed revenues growing by 9.4% year over year to $4.7 billion. Comparable sales logged 4.2% gains.
Management projected that comparable sales would grow in a range of 4% to 6% in the current quarter.
Investors sent the shares up 3.3% in early trading on Wednesday.
During the conference call with analysts, CEO Mike Creedon said that the company also had seen “strong end of quarter momentum heading into the holidays.” The company’s multi-price assortment, he said, “is resonating with our shoppers by helping them meet their needs and desires in the budget-constrained environment that many consumers find themselves today … while the consumer landscape remains uneven, the underlying story remains consistent: all consumers are seeking value.”
Dollar Tree, he said, is gaining share among shoppers. Creedon said that there had been 3 million more households shopping at the company’s stores this year than last year. “Approximately 60% of these incremental shoppers came from higher-income households, those earning over $100,000, and 30% from middle-income households, those earning between $60,000 to $100,000,” he told analysts, adding that the “higher-income households are trading into Dollar Tree. Lower-income households are depending on us more than ever. For example, the average spend for lower-income households grew more than twice as fast in the third quarter as the average spend for higher-income households.”
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‘Building Bigger Baskets’
The company’s earnings supplementals indicated that overall traffic was down 0.3% in the quarter, while the average ticket size gained 4.5%. Drilling down into the dynamics, Creedon said on the call that “while the average per-household spend for our higher-income customers is currently lower, even given their higher income, larger average basket size, and ability to spend more, this is a simple function of trip frequency.
“Because many of our higher-income customers are still early in their relationship with Dollar Tree, their purchase frequency has significant room to grow. Over time, we believe that growing trip frequency among these higher-income customers, given their propensity to build bigger baskets, will be a powerful growth driver for Dollar Tree,” he said.
The company’s multi-price strategy, said Creedon, “broadens our value proposition and relevance to our customers, allows us to compete more effectively, helps drive cost leverage, and sets the business up for long-term success … We expect these dynamics to play out across every holiday and special occasion and strengthen as our multi-price penetration expands.”
During the question-and-answer period with analysts, management was asked about the decline in traffic. Creedon said that “we really see traffic as a mix between some internal activity, namely the restickering, and some broader retail trends. We don’t see it as a pushback from our customer. And if you look at our performance in the quarter, we had great growth across all income cohorts, and our core customer really had our highest comp,” and traffic reaccelerated toward the end of the quarter.
“We’re very excited about what Thanksgiving and Christmas and all the seasons can do for us,” he said.
As 85% of the typical store’s inventory is still $2 or less, said Creedon, “we’re still early in this multiprice game. And when you look at what the seasons have done, we’re going to continue to benefit in those seasons from the multiprice assortment. And we’re really looking at everyday essentials and where we can benefit in the assortment there.”
