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Consumers are becoming increasingly price-conscious, if Dollar Tree’s latest earnings report is anything to go by. The discount retailer reported an 8.2% increase in net sales and 6.9% growth in same-store sales this quarter. Foot traffic was up 9.6% at Dollar Tree stores and 3.4% at Family Dollar stores, which are owned by Dollar Tree.
Even higher-income consumers appear to be seeking lower prices this year. Dollar Tree gained nearly 5 million new customers in the past year, chairman and CEO Rick Dreiling said, 2.6 million of whom have household incomes of more than $125,000.
However, much of the increased sales the company’s seeing are in essentials, and not higher-margin discretionary items.
Dollar Tree is seeing “extremely high volume growth” in frozen and center-store (packaged or shelf-stable) foods, Dreiling said. It’s part of an “industry-wide shift in consumer purchasing behaviors to consumables,” he explained, describing it as a “continuing rotation to a pre-pandemic balance after years of elevated spending across discretionary categories.”
Customers are also opting for lower-cost private label brands, he noted. Dollar Tree introduced more than 125 new private-label items this year.
Income slump: Higher sales haven’t led to higher profits for Dollar Tree, though. Its net income declined by 44% this quarter, from $299 million to $200.4 million. The company’s margins were down, largely due to shrink, inflation, poor sales mix, lower merchandise margins, and maintenance costs, CFO Jeff Davis said.
Wage growth has also contributed to the company’s SG&A expenses. Recently, Dollar Tree experienced staffing shortages that forced some stores to reduce their hours, Dreiling said. It increased wages and benefits, and has seen “double digit improvements…in employee turnover and store vacancy.”