Dive Brief:

• Dollar Tree Inc.’s consolidated net sales rose 5.4% to $7.3 billion in the third quarter, the company said Wednesday. At the company’s namesake banner, net sales rose 6.6% year over year to about $4 billion. Family Dollar net sales rose 3.9% to $3.3 billion.
• The company’s overall same-store sales grew 3.9%, while Dollar Tree comps increased 5.4% and Family Dollar comps grew 2% from the year-ago period. The company's operating income fell nearly 21% year over year to $301.7 million from $381.3 million last year.
• Dollar Tree lowered its full-year outlook Wednesday. The company now expects its fiscal 2023 consolidated net sales to range from $30.5 billion to $30.7 billion, down from a previous range of $30.6 billion to $30.9 billion.

Dive Insight:

Sales at both of Dollar Tree’s banners lost momentum during the company’s latest quarter, with Family Dollar posting a particularly pronounced slowdown.

The 2% same-store sales growth at Family Dollar in Q3 was off from 5.8% in the second quarter, while Dollar Tree’s 5.4% comp growth in Q3 was off by more than 2 percentage points compared with Q2. Overall comps were also sharply lower in Q3 than they were in Q2, when the retailer saw the metric rise by 6.9%.

Speaking during an earnings call on Wednesday, Dollar Tree CEO Rick Dreiling attributed the weakness the company saw in Q3 in part to declining SNAP benefits, which he said contributed to lower spending by less affluent shoppers.

“Similar to what other retailers have reported, we experienced softening trends throughout the quarter, particularly in October, as lower income consumers responded to the accumulated impact of inflation and reduced government benefits, we saw a notable pullback in spending, particularly in higher-margin discretionary categories,” he said.

Dreiling said the company’s Dollar Tree segment has added 4.3 million new shoppers over the past 12 months, with the majority of those customers having household incomes of more than $125,000. Family Dollar, meanwhile, has seen its customer base grow during the last year by 2.3 million, Dreiling said.

“As a value retailer, we’re uniquely positioned to meet customers’ needs in a challenging economic environment. We remain focused on the factors that we can control and will continue to navigate as best we can around those that we don’t,” Dreiling said.

Dreiling said the company has initiated “a comprehensive review of our Family Dollar portfolio to address underperforming stores that are not aligned with our transformative vision for the company.” The review will involve identifying stores for possible closure, re-bannering or relocation. Slightly more than half of the company’s approximately 16,622 stores it operated as of Oct. 28 were under the Family Dollar banner.

“Going forward, we need to ensure that the Family Dollar portfolio is well-positioned for success and meets the financial and operating objectives of our organization and the expectations of our valued customers and associates. We believe that this action will fortify our base, strengthen our brand and allow Family Dollar to achieve its full growth potential,” Dreiling said.

Despite missing expectations, Family Dollar’s overall sales and comp sales for Q3 are reasonable but the numbers represent “a significant downtick on the levels that were delivered over the past year,” GlobalData Managing Director Neil Saunders said in emailed comments. “Some of this is down to tougher prior year numbers, but some is also a consequence of a slight uptick in the rates of shopping around by core consumers and a slower pace of new customer acquisition.”

Saunders said the portfolio review is a prudent move and noted that Family Dollar is pursuing good business initiatives, like expanding private label options, which gives shoppers alternatives to national brands and allows the retailer to better compete with rival Dollar General and discount grocery stores.

Dreiling also said Dollar Tree’s efforts to bring frozen and refrigerated products to more stores is “significantly ahead” of schedule. The company had expected to offer those goods in 5,500 stores by the end of 2023, but already has them in 6,500 locations, he said.

Dollar Tree’s private brand penetration in Q3 came in at 14%, and the company is on track to bring that figure to 20% by 2026, Dreiling said.