Dollar Tree, Inc., has reported financial results for its second quarter ended August 1, 2020.
The company owns Dollar Tree and Family Dollar stores. Magnolia has stores with both brandings, and the Family Dollar store is undergoing a renovation to add freezers and coolers.
“Our store and distribution center teams have done a remarkable job of serving customers through an incredibly dynamic time in retail. Their continual efforts to ensure we are providing a clean, safe shopping experience, along with the great value and convenience our stores offer, contributed to our solid operating performance for the quarter,” said Mike Witynski, president and chief executive officer. “The teams delivered strong same-store sales of 7.2 percent, a 180 basis point improvement in gross profit margin, and a 130 basis point increase in operating profit margin, despite incurring COVID-19 and civil unrest-related costs exceeding $150 million in the quarter.”
Consolidated net sales increased 9.4 percent to $6.28 billion from $5.74 billion in the prior year’s second quarter. Enterprise same-store sales increased 7.2 percent. Same-store sales for Family Dollar increased 11.6 percent. Dollar Tree same-store sales increased 3.1 percent.
Gross profit increased 16.2 percent to $1.92 billion in the quarter compared to the prior year’s second quarter. As a percentage of net sales, gross margin increased 180 basis points to 30.5 percent, compared to 28.7 percent in the prior year’s quarter. The increase in gross margin was driven by improved merchandise costs including freight, leverage on occupancy costs from stronger same-store sales, reduced markdowns and improved shrink results, partially offset by higher distribution costs, which included $11.4 million in COVID-19-related payroll costs, and incremental tariffs of approximately $10.8 million.
Operating income for the quarter improved 39.4 percent to $374.9 million compared with $268.9 million in the same period last year and operating income margin was 6.0 percent in the current quarter compared to 4.7 percent in last year’s quarter. The second quarter of 2020 included total incremental operating costs of $134.9 million for COVID-19-related expenses. These incremental costs by segment were $76.6 million for Dollar Tree, $57.1 million for Family Dollar and $1.2 million for Corporate and Support.
Additionally, during the second quarter of 2020, the company experienced store damage, lost inventory, and other costs of $16.8 million related to civil unrest in certain communities, comprised of $11.7 million at Family Dollar and $5.1 million at Dollar Tree. Together, expenses related to COVID-19 and civil unrest for the quarter were $151.7 million, or 49 cents per diluted share.
Net income was $261.5 million in the second quarter and diluted earnings per share for the quarter increased 44.7 percent to $1.10, compared to $0.76 per share in the prior year’s quarter.
The company opened 131 new stores, expanded or relocated 22 stores, and closed 26 stores. Additionally, the company completed 76 renovations to the Family Dollar H2 format. Retail selling square footage at quarter end was approximately 123.1 million square feet.
Due to uncertainty related to the COVID-19 pandemic, the Company withdrew its fiscal 2020 guidance in its March 31, 2020 Business Update. Given the expectation of continued volatility and uncertainty, the company is not issuing updated guidance at this time.
The company continues to expect the completion of 500 new store openings (consisting of 325 Dollar Tree and 175 Family Dollar) and 750 Family Dollar H2 store renovations in fiscal 2020.
Capital expenditures for fiscal 2020 are expected to be approximately $1.0 billion.
The company ended the quarter with $1.75 billion in cash on its balance sheet, including $500 million drawn on the company’s revolving line of credit. The company paid down $250 million on its line of credit during the quarter.