Dollar General, Dollar Tree stay on expansion track

Strong Q2 sales help fuel major store opening and upgrade plans

Russell Redman 1 | Aug 28, 2020

Dollar General and Dollar Tree are pushing forward with aggressive store expansions, including a focus on food and consumables, as coronavirus-related shopping behavior contributed to strong sales gains for both dollar chains in the second quarter.

Goodlettsvile, Tenn.-based Dollar General said yesterday that fiscal 2020 second-quarter net sales jumped 24.4% to $8.68 billion from $6.98 billion a year earlier.

Related: Dollar General sees continued growth, as DG Fresh and cooler-door initiatives pay off

“We remain committed to being part of the solution during these difficult times and believe we are uniquely positioned to continue supporting our customers through our expansive network of nearly 17,000 stores within five miles or more in 75% of the U.S. population; our convenient small-box format providing for quick in-and-out access; our broad assortment of everyday household essential items; our ongoing commitment to everyday low price; our flexible supply chain; our growing digital capabilities; and, most importantly, our talented and committed associates,” CEO Todd Vasos told analysts in a conference call on Thursday.

Dollar General

Dollar General added fresh produce at over 120 stores, with a total of more than 870 stores now carrying fresh fruit and vegetables.

Related: Michael Witynski promoted to CEO of Dollar Tree

Same-store sales in the period, which ended July 31, surged by 18.8% year over year, reflecting COVID-19’s impact on consumer shopping habits, according to Dollar General. The chain noted that comp sales rose in the consumables, seasonal, home products and apparel categories, with the largest uptick in home products.

“These results include significant growth in average basket size, partially offset by a decline in customer traffic, as we believe customers consolidated trips in an effort to limit social contact,” Vasos said.

In the fiscal 2020 first half, Dollar General opened 500 new stores, remodeled 973 stores and relocated 43 stores. The retailer finished the period with 16,720 stores in 46 states.

“During the first half, we added more than 30,000 cooler doors across our store base. In total, we now expect to install more than 60,000 cooler doors this year compared to our previous target of 55,000 cooler doors in 2020. Notably, the majority of these doors will be in high-capacity coolers, creating additional opportunities to drive higher on-shelf availability and deliver an even wider product selection,” Chief Operating Officer Jeffery Owen said in the call.

Remodels included 704 stores converted to the higher cooler-count Dollar General Traditional Plus (DGTP) or Dollar General Plus (DGP) formats. Owen said fresh produce was added at more than 120 stores, with a total of more than 870 stores now carrying fresh fruit and vegetables.

“Moving to our Better-for-You offering, which is especially important for our customers as more food continues to be consumed at home, this offering is now available in approximately 6,400 stores, with plans to expand to more than 7,000 stores by year-end,” he added.

For fiscal 2020, Dollar General aims to open 1,000 new stores, remodel 1,670 stores and relocate 110 stores, for a total of 2,780 real estate projects.

“We remain focused on advancing our operating priorities and strategic initiatives as we continue to meet the evolving needs of our customers and better position Dollar General for continued long-term growth,” said Vasos. “To that end, and from a position of strength, we are pleased to announce the acceleration of several value-creating initiatives, including DG Pickup, DG Fresh and our non-consumables initiatives. We are also increasing our expectation for remodels and relocations in 2020.”

Dollar Tree

Overall same-store sales grew 7.2% at Dollar Tree, with increases of 11.6% for Family Dollar stores and 3.1% for Dollar Tree stores.

At Chesapeake, Va.-based Dollar Tree, which also operates the Family Dollar banner, net sales climbed 9.4% to $6.28 billion from $5.74 billion for the second quarter ended Aug. 1. Overall comparable-store sales grew 7.2%, reflecting increases of 11.6% for Family Dollar and 3.1% for Dollar Tree.

“Family Dollar’s 11.6% comp reflected the continuation of momentum that we saw in Q1, as customers are viewing Family Dollar as a convenient, safe, local option with great values on food, essentials, household products, cleaning supplies, home decor and much, much more,” Dollar Tree President and CEO Michael Witynski told analysts in a conference call on Thursday. Witynski took the chief executive’s reins in July, succeeding Gary Philbin, who is slated to retire later next month.

“For the quarter, discretionary [categories] delivered a positive 9% comp, and consumables were down approximately 3%. The comp sales for every line of business at Dollar Tree improved from quarter one to quarter two, with the exception of the food category,” Witynski explained. “Factors impacting food include reduced availability of protein products from periodic plant shutdowns, slowed sales of impulse snacks as traffic has declined, and some vendors are focusing more on larger pack sizes based on demand and their production capacity. Categories that performed well in the quarter include crafts, kitchenware, housework products, party celebrations and beauty and eyewear.”

Dollar Tree

In the second quarter, 76 Family Dollar stores were converted to the H2 format, which has more cooler doors and a bigger consumables assortment.

Concerning Dollar Tree stores, Chief Financial Officer Kevin Wampler added, “The team is actively managing the mix of inventory to build food and essential goods categories.”

Dollar Tree opened 131 new stores, expanded or relocated 22 stores, and closed 26 stores during the second quarter, ending the period with 15,479 stores overall. The company also completed the conversion of 76 Family Dollar stores to the banner’s H2 format, which has more cooler doors, a bigger consumables assortment (including a larger private-label selection) and the addition of adult beverages. In the first quarter, Dollar Tree had opened 99 new stores, expanded or relocated 21 stores, and closed 14 stores, as well as made 220 Family Dollar H2 renovations.

Plans call for the retailer to open 500 new stores — 325 Dollar Tree and 175 Family Dollar locations — and complete 750 Family Dollar H2 store renovations in fiscal 2020.

“Our merchant teams are doing a tremendous job of adapting and reacting to evolving customer trends, and our store operators are focused on running great, clean, safe stores,” Witynski said. “At Dollar Tree and Family Dollar, we have a tremendous opportunity to drive sales, enhance gross margins and leverage our cost structure, each contributing to operating margin improvements over time. We are a growth company and the most attractive sector in retail, opening more stores, renovating stores, improving our efficiencies, generating significant free cash flow, focusing on our customers and running great businesses.”

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