Q3 net earnings at Dollar Tree increased 23.7% over 3Q07 as consumers continue to turn to discount retailers and dollar stores for their basic shopping needs, reports Retailing Today.
Earlier this month, Dollar Tree reported a healthy 11.6% sales growth to $1.11 billion and same-store growth of 6.2% over the previous year, helped by strong sales of food and seasonal items .
Dollar Tree was able to slightly reduce its selling, general, and administrative expenses to 27.8% of sales from 28.4% last year due to expense control, reduced advertising expense, and favorable leverage from the comparable store sales increase, Trading Markets writes.
Full-year sales are estimated to range from $4.64-4.68 billion, with earnings of $2.45-2.53 per share. Q4 per-share earnings are expected to be $1.07-1.15, and sales estimates were set at $1.38-1.42 billion, based on low-to- -mid single-digit positive comparable-store sales.
Dollar Tree operates 3,572 stores in 48 states but is rapidly expanding and aims to add 7% of square footage per year. During the third quarter (ended Nov. 1), the company opened 68 stores, closed 13 stores, and expanded or relocated 36 stores.Retailer Daily has compiled comparable store sale data from the SEC filings of 26 major US retailers spanning several years, up to the most recently released September numbers. The data excludes fuel sales (which would have distorted numbers because of high gas inflation, then deflation, in 2008) and is available in Excel format from the link below:In the drugstore vertical, Walgreens, which set sales records for the second, third and fourth quarters of its fiscal 2009, continued its general 2009 trend of improving same-store sales (the only month this year Walgreens has reported a same-store sales decline is February). In the months ahead, Walgreens may also see the benefits of expanded rollout of its Customer Centric Retailing (CCR) store format that that streamlines assortments and devotes more store selling space to skin care and cosmetic products. Struggling drugstore chain Rite Aid, which reported same-store sales declines in five of the first eight months of 2009, saw same-store sales rise 0.3% in September. Even this modest increase is good news for Rite Aid, which reported declining revenues and gross profits in its fiscal Q2 2010 (ended August 29, 2009).
Meanwhile, leading drugstore retailer CVS, which only releases same-store sales figures by the quarter, reported a 6.1% same-store sales increase in Q2 2009, a quarter in which CVS saw net earnings, revenues and operating profit rise. CVS cited this year’s late Easter holiday as boosting front-of-store sales for the quarter, while the introduction of generic drugs had a negative impact on still-strong retail pharmacy sales.
In the auto parts segment, Auto Zone reported a solid quarterly same-store sales increase of 5.4%. According to the August 2009 Advance Monthly Retail Trade Survey from the U.S. Census Bureau, motor vehicle and parts retailers had a 10.6% sales increase driven by the federal “Cash for Clunkers” auto-buying incentive program. Auto Zone’s quarterly same-store sales likely received a boost from this program, and now that Cash for Clunkers has been closed it will be interesting to see how Auto Zone fares with its Q4 2009 same-store sales.
Dollar store retailers are continuing their strong performance in the face of a severe economic recession that has consumers fixated on obtaining the lowest prices possible. Family Dollar recently released mostly positive financial results for its fourth quarter and fiscal year 2009, and Dollar General is planning an initial public offering of stock to raise revenue for growth that could approach 12,000 new stores in the U.S.
In the supermarket vertical, Kroger reported a respectable increase in its fourth quarter same-store sales. While Kroger has been quiet in recent months, as a well-established national supermarket player it undoubtedly benefits from providing a product that consumers literally cannot live without on a very regular basis. However, the quarterly same-store sales decline posted by Supervalu shows that supermarket retailers cannot assume positive same-store sales by virtue of supplying a product that must be regularly replenished. Earlier this year, Supervalu offered fiscal 2010 guidance predicting a net sales decline of 3%.
For the first time in a long time, department store retailers have a reason to be at least mildly optimistic about their same-store sales. Kohl’s reported an impressive 5.5% same-store sales increase during September, and department store chains including JCPenney and Macy’s substantially cut their September declines from August levels.
JCPenney has been actively promoting a variety of new online services and licensed private label goods. Macy’s is rolling out a new merchandise localization program, so it will be worth watching Macy’s same-store sales in the upcoming months to gauge the effectiveness of that initiative. Like JCPenney, Kohl’s has been heavily involved in selling licensed private label merchandise and has entered a number of celebrity merchandising partnerships to boost sales with the female tween audience.
Not all department store retailers have reason to feel confident, however. Sears, which recently reported soft results for Q2 2009, should be disappointed with its steep same-store sales drop considering the numerous activities it has recently undertaken to launch new product lines and improve multichannel customer service. , saw its same-store sales loss grow to its highest point of the year in July and apparently is not yet seeing benefits. Gap, which increased its same-store sales decline by one percentage point between August and September, continues to struggle to connect with consumers. Gap recently launched a major strategic initiative to regain market share in its three store banners. The initiative includes efforts to improve assortment, product categories, in-store customer experience, and advertising and marketing.
The continuing same-store sales declines at most department stores, shrinking or not, signals that the vertical continues its slump from the last several months. While the discount vertical traditionally poses the biggest challenge to department store retailers, discount leaders Wal-Mart and Target both reported declines in their most recent same-store sale results. However, consumers at all income levels are even starting to turn to dollar store retailers for many purchases. The most recent quarterly same store sales results from major dollar store players Family Dollar and Dollar General are indicative of this growing trend.
Previous Analysis
In the office supply segment, vertical leader Staples reported a 5% same-store sales decline despite launching a major back-to-school promotion in mid-July. Recent independent research from the National Retail Federation (NRF) and Deloitte indicate that back-to-school sales are sluggish this year, although improved from 2008.
In the home improvement vertical, The Home Depot and Lowe’s both recently reported declining net earnings for Q2 2009. Based on second quarter performance and their own forecasts, Home Depot and Lowe’s should continue to produce sluggish results for the remainder of fiscal 2009. While The Home Depot and Lowe’s were both fairly quiet during Q2, Home Depot publicly discussed financial expectations, strategic priorities and long-term operating targets during its 2009 investor and analyst conference In addition to its expectations for a 9% drop in sales, Home Depot also predicted comparable store sales to decline in the high-single digit area and gross margin expansion to be flat to slightly positive. In the long term, Home Depot said it believes that its strategic priorities, along with a correction in the home improvement market, will allow it to achieve an operating margin of approximately 10% and a return on invested capital of approximately 15%.
Retailers in verticals such as drugstore, consumer electronics, supermarket, toys and arts and crafts face a new, heightened challenge from discount giant Wal-Mart. The retailer launched a new program called Project Impact last week, designed to improve customer service and knock vertical competitors out of business. Project Impact includes features such as less crowded aisles with better sight lines, more convenient placement of consumables, improved assortments, and more prominent promotion of vertical products. If Project Impact is successful, numerous vertical retailers may see their same-store sales slip.
Sales for existing stores typically reflect a combination of (a) the robustness of consumer consumption in their individual trading areas and (b) the local standing and competitiveness of each store within its trading area. Among other criteria, retailers look at average order size multiplied by the number of transactions during the period to identify sources of revenue growth per store. Growth might, for instance, be driven by a more expensive product mix if, say, a retailer started successfully upselling higher-end products to its customers.
Another issue affecting same-store sales is trading-area saturation, whether because of competitive pressure or self-inflicted causes. Home Depot, for instance, stated in a recent SEC filing that it opened stores “near market areas served by existing stores (“cannibalize”) to enhance service levels, gain incremental sales and increase market penetration…. [N]ew stores cannibalized approximately 9% of our existing stores as of the second quarter of fiscal 2008, which had a negative impact to comparable store sales of approximately 1%.”
Declining same-store sales can increase the weight of selling, general and administrative expenses (SG&A) as a percentage of sales. For instance, Home Depot said in 2008 that its “deleverage in SG&A reflects the impact of negative comparable store sales, where for every one percentage point of negative comparable store sales, we expect to deleverage expenses by about 20 basis points.” Also, Mapping of the 155 stores closed by Circuit City in November 2008 showed that overlap in some markets probably contributed to under-performance there. Were the current recession to last, it is quite likely that retail density will decrease with more store closures in areas showing the most overlap.
Earlier this month, Dollar Tree reported a healthy 11.6% sales growth to $1.11 billion and same-store growth of 6.2% over the previous year, helped by strong sales of food and seasonal items .
Dollar Tree was able to slightly reduce its selling, general, and administrative expenses to 27.8% of sales from 28.4% last year due to expense control, reduced advertising expense, and favorable leverage from the comparable store sales increase, Trading Markets writes.
Full-year sales are estimated to range from $4.64-4.68 billion, with earnings of $2.45-2.53 per share. Q4 per-share earnings are expected to be $1.07-1.15, and sales estimates were set at $1.38-1.42 billion, based on low-to- -mid single-digit positive comparable-store sales.
Dollar Tree operates 3,572 stores in 48 states but is rapidly expanding and aims to add 7% of square footage per year. During the third quarter (ended Nov. 1), the company opened 68 stores, closed 13 stores, and expanded or relocated 36 stores.Retailer Daily has compiled comparable store sale data from the SEC filings of 26 major US retailers spanning several years, up to the most recently released September numbers. The data excludes fuel sales (which would have distorted numbers because of high gas inflation, then deflation, in 2008) and is available in Excel format from the link below:In the drugstore vertical, Walgreens, which set sales records for the second, third and fourth quarters of its fiscal 2009, continued its general 2009 trend of improving same-store sales (the only month this year Walgreens has reported a same-store sales decline is February). In the months ahead, Walgreens may also see the benefits of expanded rollout of its Customer Centric Retailing (CCR) store format that that streamlines assortments and devotes more store selling space to skin care and cosmetic products. Struggling drugstore chain Rite Aid, which reported same-store sales declines in five of the first eight months of 2009, saw same-store sales rise 0.3% in September. Even this modest increase is good news for Rite Aid, which reported declining revenues and gross profits in its fiscal Q2 2010 (ended August 29, 2009).
Meanwhile, leading drugstore retailer CVS, which only releases same-store sales figures by the quarter, reported a 6.1% same-store sales increase in Q2 2009, a quarter in which CVS saw net earnings, revenues and operating profit rise. CVS cited this year’s late Easter holiday as boosting front-of-store sales for the quarter, while the introduction of generic drugs had a negative impact on still-strong retail pharmacy sales.
In the auto parts segment, Auto Zone reported a solid quarterly same-store sales increase of 5.4%. According to the August 2009 Advance Monthly Retail Trade Survey from the U.S. Census Bureau, motor vehicle and parts retailers had a 10.6% sales increase driven by the federal “Cash for Clunkers” auto-buying incentive program. Auto Zone’s quarterly same-store sales likely received a boost from this program, and now that Cash for Clunkers has been closed it will be interesting to see how Auto Zone fares with its Q4 2009 same-store sales.
Dollar store retailers are continuing their strong performance in the face of a severe economic recession that has consumers fixated on obtaining the lowest prices possible. Family Dollar recently released mostly positive financial results for its fourth quarter and fiscal year 2009, and Dollar General is planning an initial public offering of stock to raise revenue for growth that could approach 12,000 new stores in the U.S.
In the supermarket vertical, Kroger reported a respectable increase in its fourth quarter same-store sales. While Kroger has been quiet in recent months, as a well-established national supermarket player it undoubtedly benefits from providing a product that consumers literally cannot live without on a very regular basis. However, the quarterly same-store sales decline posted by Supervalu shows that supermarket retailers cannot assume positive same-store sales by virtue of supplying a product that must be regularly replenished. Earlier this year, Supervalu offered fiscal 2010 guidance predicting a net sales decline of 3%.
For the first time in a long time, department store retailers have a reason to be at least mildly optimistic about their same-store sales. Kohl’s reported an impressive 5.5% same-store sales increase during September, and department store chains including JCPenney and Macy’s substantially cut their September declines from August levels.
JCPenney has been actively promoting a variety of new online services and licensed private label goods. Macy’s is rolling out a new merchandise localization program, so it will be worth watching Macy’s same-store sales in the upcoming months to gauge the effectiveness of that initiative. Like JCPenney, Kohl’s has been heavily involved in selling licensed private label merchandise and has entered a number of celebrity merchandising partnerships to boost sales with the female tween audience.
Not all department store retailers have reason to feel confident, however. Sears, which recently reported soft results for Q2 2009, should be disappointed with its steep same-store sales drop considering the numerous activities it has recently undertaken to launch new product lines and improve multichannel customer service. , saw its same-store sales loss grow to its highest point of the year in July and apparently is not yet seeing benefits. Gap, which increased its same-store sales decline by one percentage point between August and September, continues to struggle to connect with consumers. Gap recently launched a major strategic initiative to regain market share in its three store banners. The initiative includes efforts to improve assortment, product categories, in-store customer experience, and advertising and marketing.
The continuing same-store sales declines at most department stores, shrinking or not, signals that the vertical continues its slump from the last several months. While the discount vertical traditionally poses the biggest challenge to department store retailers, discount leaders Wal-Mart and Target both reported declines in their most recent same-store sale results. However, consumers at all income levels are even starting to turn to dollar store retailers for many purchases. The most recent quarterly same store sales results from major dollar store players Family Dollar and Dollar General are indicative of this growing trend.
Previous Analysis
In the office supply segment, vertical leader Staples reported a 5% same-store sales decline despite launching a major back-to-school promotion in mid-July. Recent independent research from the National Retail Federation (NRF) and Deloitte indicate that back-to-school sales are sluggish this year, although improved from 2008.
In the home improvement vertical, The Home Depot and Lowe’s both recently reported declining net earnings for Q2 2009. Based on second quarter performance and their own forecasts, Home Depot and Lowe’s should continue to produce sluggish results for the remainder of fiscal 2009. While The Home Depot and Lowe’s were both fairly quiet during Q2, Home Depot publicly discussed financial expectations, strategic priorities and long-term operating targets during its 2009 investor and analyst conference In addition to its expectations for a 9% drop in sales, Home Depot also predicted comparable store sales to decline in the high-single digit area and gross margin expansion to be flat to slightly positive. In the long term, Home Depot said it believes that its strategic priorities, along with a correction in the home improvement market, will allow it to achieve an operating margin of approximately 10% and a return on invested capital of approximately 15%.
Retailers in verticals such as drugstore, consumer electronics, supermarket, toys and arts and crafts face a new, heightened challenge from discount giant Wal-Mart. The retailer launched a new program called Project Impact last week, designed to improve customer service and knock vertical competitors out of business. Project Impact includes features such as less crowded aisles with better sight lines, more convenient placement of consumables, improved assortments, and more prominent promotion of vertical products. If Project Impact is successful, numerous vertical retailers may see their same-store sales slip.
Sales for existing stores typically reflect a combination of (a) the robustness of consumer consumption in their individual trading areas and (b) the local standing and competitiveness of each store within its trading area. Among other criteria, retailers look at average order size multiplied by the number of transactions during the period to identify sources of revenue growth per store. Growth might, for instance, be driven by a more expensive product mix if, say, a retailer started successfully upselling higher-end products to its customers.
Another issue affecting same-store sales is trading-area saturation, whether because of competitive pressure or self-inflicted causes. Home Depot, for instance, stated in a recent SEC filing that it opened stores “near market areas served by existing stores (“cannibalize”) to enhance service levels, gain incremental sales and increase market penetration…. [N]ew stores cannibalized approximately 9% of our existing stores as of the second quarter of fiscal 2008, which had a negative impact to comparable store sales of approximately 1%.”
Declining same-store sales can increase the weight of selling, general and administrative expenses (SG&A) as a percentage of sales. For instance, Home Depot said in 2008 that its “deleverage in SG&A reflects the impact of negative comparable store sales, where for every one percentage point of negative comparable store sales, we expect to deleverage expenses by about 20 basis points.” Also, Mapping of the 155 stores closed by Circuit City in November 2008 showed that overlap in some markets probably contributed to under-performance there. Were the current recession to last, it is quite likely that retail density will decrease with more store closures in areas showing the most overlap.
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