Consumer reluctance to engage in discretionary spending resulted in Dollar Tree’s second quarter being short of expectations.
Net income was $132.4 million and diluted earnings per share was 62 cents versus $200.4 million, or 91 cents per diluted share, in the year-previous period.
Adjusted for one-time events, second quarter net income was $143.4 million, or 67 cents per diluted share, in the quarter, the company reported. Dollar Tree made no adjustment to net income in the year-before period.
A Yahoo Finance-published analyst consensus estimate called for earnings per adjusted diluted share of $1.04 and revenue of $7.49 billion.
Company comparable sales increased by 0.7%, driven by a 1.1% increase in traffic, offset by a 0.5% decline in average ticket. Dollar Tree banner comps increased 1.3%, driven by a 1.4% increase in traffic, offset by a 0.1% decline in average ticket. Family Dollar comps decreased 0.1%, driven by a 0.7% increase in traffic, offset by a 0.8% decline in average ticket. Family Dollar comps don’t include stores closed during the second quarter as part of a previously announced portfolio optimization, Dollar Tree pointed out.
Consolidated net sales gained 0.7% to $7.37 billion, the company noted. Operating income slid 29.4% to $203.1 million year over year, while adjusted operating income declined 24.2% to $218.1 million.
In a conference call, Mike Creedon, Dollar Tree chief operating officer, said the company was not pleased with its second quarter results and noted that consumables sales continued to lead comp gains as discretionary sales, particularly for higher margin products in that assortment, such as home goods, were soft. At Dollar Tree stores, discretionary comps were down 1.9%, even as consumables comps were up 4.7%. At Family Dollar, consumables comps increased 0.3% while discretionary comps slipped 1.7%.
Still, Dollar Tree did point to what it characterized as positives in the quarter, including conversions of recently acquired 99 Cents Only locations.
In announcing the financial results, Rick Dreiling, Dollar Tree chairman and CEO, said, “We are encouraged by the continuous progress we are making in the transformation underway at Dollar Tree and Family Dollar, despite immense pressures from a challenging macro environment. Customers are responding favorably to initiatives like our expanded multi-price offering and we are already seeing a meaningful sales lift at the 1,600 Dollar Tree stores that have been converted to our newest in-line multi-price format. With thousands of stores left to convert, we believe we are still in the very early innings of this rollout, with many years of runway left ahead of us.”
CFO Jeff Davis added, “Our adjusted EPS of 67 cents was 38 cents below the midpoint of our previous outlook range. While the vast majority of this variance was attributable to an adjustment of our general liability accrual, a portion was attributable to a comp shortfall which reflected the increasing effect of macro pressures on the purchasing behavior of Dollar Tree’s middle- and higher-income customers.”
