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Dollar Stores: Dreiling Re-Energizing Dollar Tree & Family Dollar

Thomas Paulson
Mar 3, 2023
Dollar Stores: Dreiling Re-Energizing Dollar Tree & Family Dollar

Recall that we called out Dollar Tree Inc. as one of the winners of Holiday 2022 given strong traffic performance at both of its banners: Dollar Tree and Family Dollar. For Q4 2022, Dollar Tree Inc. exceeded its internal plan, whereas Dollar General missed its plan. As shown in the table below, Tree and Family produced accelerating 1-, 2-, and 3-year comparable-store sales CAGRs; in contrast, these slowed for General. On its Q4 2022 earnings release, Dollar Tree’s new CEO Rick Dreiling (previously Dollar General’s CEO) noted, “Our sales performance shows that...the early transformation actions taken since last summer are already beginning to have a positive impact. We are committed to driving further store productivity as we focus on developing our people, tools and technology to fuel our accelerated growth, while simplifying our operations, improving our supply chain and innovating our merchandising strategy to better support our associates and to better serve our shoppers.” To achieve this ambition, Dreiling intends to invest over $430M (or 20% of last year's profits) back into the business in the form of higher labor and wages, store maintenance, information technology, and corporate systems. Additionally, to upgrade its stores, IT, and supply chain, Dreiling will spend an additional +$800M ($2B in total) in capex

  • Dollar Tree locations that have lapped the introduction of $1.25+ price points produced +3% comparable-store increase and those that are in the first year of the new price points posted a +11.6% comparable-store sales increase, marking “a significant sequential improvement for the second consecutive quarter. Traffic improved 410 basis points sequentially compared to the prior quarter and is now trending positively as the company has cycled the transition to a $1.25 price point.” Family Dollar’s +5.8% comparable-store sales increase was comprised of a +5.3% increase in average ticket and a +0.5% increase in traffic.
  • Both banners have seen momentum through January, with Dollar Tree leading in traffic.
  • In Dollar Tree's Q4 2022 update press release, Dreiling went on to say, “We are confident that the accelerated investments outlined will transform our company will enable and propel us through years of accelerated growth and margin improvement...I am eager to share more details regarding the company’s vision in the months ahead. Dollar Tree has a bright future and I am energized to be a part of this transformational journey.”
  • Guidance is for a low single-digit comp-store increase at Tree and a mid-single-digit increase at Family. As to new stores and upgrades, “our growth optimization and productivity improvement projects will include 650 new stores, an estimated 1,000 store renovations, numerous distribution center projects and technology projects to enhance our efficiencies and support our growth.”
  • Dreiling went on to note:

"At Family Dollar, it's clear that we are at least a decade behind, and this is reflected in our prior performance levels and financial results…Compared to just a few short months ago, the list of improvement opportunities has grown… Under this new leadership team, we are increasing average hourly wages and estimated $2 for the 2-year period of 2022 and 2023… We also made additional investments in store hours and coverage, investments in our field labor and managers and other areas to help us execute much better. We expect these labor and wage investments will drive improved execution in our stores, higher sales, lower turnover attraction of and retention of talent, reduce shrink and greater productivity and efficiency…We are looking to invigorate the culture of this business, give our local operators and associates, the tools they need to execute and importantly provide them the opportunities they deserve to grow within our company. …an intense focus on store standards, our commitments to clean them up, straighten them up and fill them up. When we do this, our shoppers respond with a bigger basket and more importantly, with repeat visits… As a high transaction volume business, it's critical we have processes in place to get product onto our shelves quickly. I'm certain that we can't sell a product if it's in the back room. Approving efficiencies and workflows positively impacts our associate experience.

The worker, as an organization must be a cornerstone that we support and enable our associates to be successful. This commitment will enhance our ability to recruit, hire, train and retain associates and contribute to their retail career development. We believe this focus, combined with our wage investments are contributing to the reduction in turnover that we are starting to see. The workplace and as we have indicated in the past, we must improve our store and DC conditions, and we are in the process of doing so. Frankly, stores and DCs were not being maintained up to our new leadership standards. We are actively transitioning from what we consider to be reactive to proactive maintenance approach.

In 2022, we added $3 and $5 plus merchandise into more than 1,800 Dollar Tree stores. We plan to add this multiple price point product in another 1,800 or more stores in 2023. And when we begin flowing this multiple price product through 3 additional distribution centers, bringing our total to 7. Separately, we have been aggressively expanding our $3, $4, $5 frozen and refrigerated product across the Dollar Tree store base going from 0 to 3,500 stores in 2022. This consists of 3 cooler doors, 1 at each price point with an attractive selection of proteins, pizza, ice cream and more, which the customers are responding positively do. What we are seeing with Dollar Tree plus and multiple price frozen is that when the customer purchased at least one of these items, the basket size is more than double the basket with no multi-priced items. We are experiencing a more consistent and predictable slide chain."

  • Last week, Dollar General published a press release that noted, “the company believes the lower-than-expected results are primarily attributable to lower-than-anticipated sales and higher-than-anticipated inventory damages, both of which were negatively impacted, to varying degrees, by Winter Storm Elliott during the fourth quarter. While both November and January same-store sales results were within the company’s expected guidance range for the fourth quarter at 6.7% and 6.5%, respectively, December’s same-store sales results were lower than anticipated at 4.5%, believed to be primarily as a result of the storm.” Also of note, on Jan. 30, General put out a release announcing the retirement of long-time CFO John Garratt who had come in under recently retired CEO Todd Vasos.

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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