Consumer spending in the U.S. picked up pace in October. Overall, the consumer sentiment was the highest during this month, driven by a drop in gas prices and higher rate of employment. This has resulted in more purchases by the customers, resulting in retail sales moving north. Thus, retailers are witnessing gains.
Discount retailer Dollar Tree (DLTR, Financial) is one such company that registered growth in sales during its third quarter. The reported numbers were ahead of the analysts’ estimate, sending its share price higher. Let’s dig in deeper.
Numbers which brought smiles
Total sales jumped 11% to $2.1 billion, as compared to the previous year. This was slightly better than what analysts were expecting. The retailer opened a total of 117 new stores during the quarter, which added to the top line growth. Also, it relocated 18 stores in order to make it more profitable. However, it was not only the new stores which added to its revenue. Sales at the existing stores also increased. Same store sales grew an impressive 5.9%. This was higher than last year’s metric of 3.1%.
Demand for products such as party items, pet supplies, hardware and household products increased, resulting in higher sales. Also, sales in the back-to-school season were good, as demand for stationery, books, etc. increased. Moreover, events such as the Halloween, helped revenue grow.
The company is engaged in adding freezers and coolers to most of its stores, so that it can offer more and more refrigerated and frozen food to its customers. Although such food has lower margins, it helps in driving traffic at stores. Also, people who visit the stores to purchase a product often end up buying something else. Thus, it increases revenue by 5% to 10%. Currently, 67% of the total Dollar Tree stores have coolers and freezers.
The bottom line of the company was also impressive. Earnings jumped 19% to $0.69 per share, over the prior year, whereas the analysts were expecting it to be at $0.64 per share. Thus, the discount retailer managed to boost its bottom line by controlling its costs.
Some new efforts
Along with adding new products and expanding the frozen food portfolio, Dollar Tree has made some interesting moves which should help its business grow. Firstly, its pay-one-price concept has become very popular as it is being liked by the customers. This new concept stores offer products at $1 or less. Flat pricing of such stores helps customers in planning their budgets beforehand.
Also, the company has been expanding its presence in Canada. The pay-one-price stores have goods priced at $1.25 because of the difference in currency. The acquisition of Dollar giant chain a couple of years back has been helpful in growing its business in this region.
Dollar Tree also plans to increase branded goods at its stores. This should attract customers who prefer branded products.
The bottom line
Moreover, the company increased its revenue outlook for the year, which impressed the investors further. However, it decreased its earnings expectations slightly because of the costs related to the potential acquisition of Family Dollar Stores. If the retailer is able to acquire Family Dollar, it would become the largest dollar store in the U.S. Thus, it is clear that the discount retailer is expected to grow in the future. Investors should take note of this great performing company.
