Dollar Tree reports financial results and plans for Family Dollar remodels, conversions and closures.
Dollar Tree announced plans to convert approximately 200 Family Dollar stores to Dollar Tree, and to close as many as 390 Family Dollar stores in 2019. Meanwhile, about 1,000 Family Dollar stores are set to be remodeled.
The news was reported along with Dollar Tree Inc.’s financial results for its fourth quarter and fiscal year ended Feb. 2, 2019 this week.
Consolidated net sales for the 52-week fiscal 2018 increased 2.6% 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%. Enterprise same-store sales increased 1.7%. Same-store sales for the Dollar Tree banner increased 3.3%. Same-store sales for the Family Dollar banner increased 0.1%.
Consolidated net sales for the 13-week fourth quarter 2018 were $6.21 billion, compared to $6.36 billion in the prior year’s fourth quarter, which included 14 weeks. When it came to same-store sales by segment: Dollar Tree was up 3.2% for the fourth quarter, while Family Dollar up approximately 1.4%
“Sales for the quarter were strong,” stated Gary Philbin, president and CEO. “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.”
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% level, and provides opportunity for margin improvements if tariffs are not increased.”
In the fourth quarter, the company took aggressive steps to optimize Family Dollar’s performance, including closing 84 stores and announcing plans to renovate at least 1,000 stores in 2019. The renovated stores will include new $1 Dollar Tree merchandise sections.
Philbin added, “Since the merger, we have prepaid $4.3 billion dollars of debt, captured significant synergies in both brands, and fully integrated most systems, functions and departments across banners. 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.”
2019 Store Optimization Program
After continued development, experimentation and testing, the company is rolling out a new model for both new and renovated Family Dollar stores internally known as H2. This new H2 model has significantly improved merchandise offerings, including Dollar Tree $1 merchandise, throughout the store.
H2 has produced increased traffic and provided an average comparable store sales lift in excess of 10% 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. The company plans to renovate at least 1,000 of these stores this year and will pursue an accelerated renovation schedule in future years.
The company, as aforementioned, closed 84 under-performing stores in the fourth quarter—closing 37 more than originally planned for the year. In fiscal 2019, the company is seeking to obtain material rent concessions from landlords on under-performing stores. Without such concessions, the company expects to accelerate its pace of 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 company plans to install adult beverages in approximately 1,000 stores and expand freezers and coolers in approximately 400 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% once they have been implemented by the end of fiscal 2019.
Integration Update
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. 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 acquisition of Family Dollar has contributed significantly to the Dollar Tree banner’s increasing profitability. The re-bannered Family Dollar stores have improved Dollar Tree’s profitability by more than $55 million per year, which it expects to increase as more Family Dollar stores are re-bannered.
