Dollar Tree Inc. DLTR is one of the retailers providing essential goods amid the growing Coronavirus-related concerns. The company has been witnessing rising store traffic as well as spiked sales for its cleaning supplies and sanitizer, household products, paper goods, food, and over-the-counter medicine as the demand for basic products continues to rise.
Products like cleaning supplies and sanitizer, household products, paper goods, food and over-the-counter medicines have seen unprecedented demand as consumers are more aware of cleanliness and continue to stay indoors to prevent the spread of the virus. Notably, the company’s same-store sales through Mar 29 remained robust, with increased sales for household consumables and food products in both Dollar Tree and Family Dollar banners. First-quarter fiscal 2020-to-date same-store sales for Dollar Tree increased 7.1%, with Family Dollar stores recording 14.4% growth.
However, the company notes that the sales trends have moderated more recently, reflecting a 19.4% decline in same-store sales at Dollar Tree for the seven days ended Mar 29. This can be attributed to the soft demand for Easter-related goods even as it enters the peak Easter selling season. Meanwhile, same-store sales for the seven-day period rose 8.8% at Family Dollar.
Despite the robust initial results, the company expects impacts from the uncertainties regarding its ability to secure and replenish high-demand products, consumer shopping patterns and lower-than-expected sales and markdowns for discretionary items on its results. Moreover, the impacts of the COVID-19 outbreak on the Easter shopping season will hurt its performance through the rest of first-quarter fiscal 2020. Further, it expects gross margin for both banners to be impacted by merchandise mix-related issues.
Also, higher-than-expected costs related to investments in pay and benefits, as well as distribution and transportation related to the spike in demand for consumables are likely to get reflected in its fiscal first-quarter results. as Additionally, extra caution to be followed cleaning protocols in stores, distribution centers and its support centers are likely to add to the cost woes.
Backed by the uncertainties related to the coronavirus outbreak as well as consumer demand and government policies, the company has withdrawn its outlook for the first quarter and fiscal 2020. Further, it has suspended all Family Dollar H2 renovations and Dollar Tree Snack Zone installations through Apr 27, 2020, to protect its employees.
Moreover, the company expects its strong balance sheet, with ample liquidity, and a flexible business model to help steer through the uncertain environment. As of Mar 30, 2020, it had $1.9 billion of cash and investments, including $750 million drawn on its revolving credit facility. It currently has $1.25 billion in revolving line of credit. Furthermore, the company suspends its share repurchase activity under its currently available authorization of $800 million for the near term.
As part of other efforts in the wake of the COVID-19 outbreak, the company on Mar 18 modified its store operating hours, directing all outlets to close at 8:00 p.m. local time. On Mar 19, it revealed plans to hire 25,000 employees to serve its stores and distribution centers due to the spike in traffic. On Mar 25, it announced plans to reward hourly-paid staff in stores and distribution centers with about $30 million in wage premiums for at least a four-week period to recognize their unparalleled dedication. Moreover, it has dedicated the first operating hour each morning to serve at-risk customers.
The company also continues to take all necessary precautions and follow cleaning protocols to prevent further spread of the virus and protect its employees and customers.
Other retailers that have temporarily closed stores and pulled back their guidance amid the coronavirus outbreak are Kohl’s Corporation KSS, Abercrombie & Fitch ANF, Nordstrom JWN and American Eagle Outfitters, to name a few.
We note that shares of Dollar Tree have plunged 21.9% year to date compared with the industry’s decline of 14.5%. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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