In addition to releasing Q3 financial results from 2021, discount retailer Dollar Tree announced it would be permanently raising its price point from $1 to $1.25. The increase, which will be rolled out in the first quarter of next year, will apply to a majority of Dollar Tree’s private label and branded inventory. The news comes after the company recently announced one-hour express delivery with Instacart.
“The company believes this is the appropriate time to shift away from the constraints of the $1price point in order to continue offering extreme value to customers,” said Dollar Tree. “This decision is permanent and is not a reaction to short-term or transitory market conditions. This new pricing strategy enables the company to reintroduce many customer favorites and key traffic-driving products that were previously discontinued due to the constraints of the $1 price point. The new price point will enable Dollar Tree to return to its historical gross margin range by mitigating historically-high merchandise cost increases, including freight and distribution costs, as well as higher operating costs, such as wage increases.”
In Q3, Dollar Tree saw consolidated net sales increase 3.9% to $6.42 billion from $6.18 billion. Gross profit was $1.76 billion for the quarter. Gross margin was 27.5% of net sales, compared to 31.2% in the prior year’s quarter. The decrease in gross margin was driven primarily by higher freight costs, partially offset by improved shrink results.
Selling, general and administrative expenses improved 100 basis points to 22.7% of total revenue compared to 23.7% in the prior year's third quarter. Dollar Tree was cycling COVID-19-related costs of $35.3 million, or 57 basis points, in the prior year’s quarter. Operating income for the quarter was $310.5 million compared with $465.5 million in the same period last year and operating income margin was 4.8% in the current quarter compared to 7.5% in last year’s quarter. Net income was $216.8 million in the third quarter and diluted earnings per share for the quarter was $0.96, compared to $1.39 per share in the prior year’s quarter.
“We experienced a strong finish to the quarter, as shoppers are increasingly focused on value in this inflationary environment,” stated Michael Witynski, president and chief executive officer. “Our Dollar Tree pricing tests have demonstrated broad consumer acceptance of the new price point and excitement about the additional offerings and extreme value we will be able to provide. Accordingly, we have begun rolling out the $1.25 price point at all Dollar Tree stores nationwide. The continuing expansion of our key strategic initiatives, including Dollar Tree Plus, Combo Stores and the H2 format, are all going well and on, or ahead of, plan. I am very proud of our team’s efforts — especially those in our stores and distribution centers – to serve our customers by delivering incredible value on everyday products.”
In the quarter alone, Dollar Tree opened 125 new stores, expanded or relocated 34 stores, and closed 23 stores. Additionally, the company completed 450 renovations to the Family Dollar H2 or Combo Store formats.