Dollar Tree's Family Dollar Partners With Instacart: What's Next?
Dollar Tree, Inc. DLTR has been making smart moves to enrich shoppers’ experience. The company’s Family Dollar division has also been taking actions to bolster growth.
In the latest revelation, Family Dollar partnered with Instacart, a popular grocery technology company in North America, to receive Supplemental Nutrition Assistance Program’s Electronic Benefit Transfer (SNAP/EBT) payments for online orders.
Let us delve deeper.
More on Instacart Collaboration
Via the aforesaid alliance, customers can enhance their shopping experience by making SNAP/EBT payments on the Family Dollar stores on the Instacart app and website. Instacart will directly deliver to shoppers’ doorsteps, offering convenience to the Family Dollar’s customers. Consumers can avail of SNAP benefits with the best online selection to shop throughout the nation.
Presently, approximately 98% of SNAP households can buy groceries and other essentials on Instacart with quick and same-day delivery. Via this partnership, Family Dollar looks forward to delivering quality and value on groceries and essentials to its consumers.
Family Dollar stores earlier accepted SNAP/EBT payments from customers in person. This partnership with Instacart allows the division to extend convenience to its customers with fast and same-day delivery on SNAP-eligible products on its mobile app and storefront page. This collaboration is likely to tap extra sales and bolster growth at Family Dollar.
Family Dollar’s Performance
Dollar Tree’s Family Dollar segment has been pressured by soft spending for a while now, resulting in weak demand for discretionary items. The lower-income customers at Family Dollar have been mostly pressured by reductions in government SNAP benefits. Lower SNAP benefits resulted in a 60-basis point comparable store-sales (comps) headwind for Family Dollar.
Comps dipped 0.1% for the Family Dollar banner in the second quarter of fiscal 2024 due to a 0.8% decline in average ticket. Discretionary comps fell 1.7% in the same quarter. The bottom-performing categories were home decor, seasonal and beauty-skewed toward discretionary. Family Dollar's unit and market share were almost flat in the quarter. For fiscal 2024, the company’s guidance incorporates the benefits of favorable freight rates and moderating headwinds from reduced SNAP benefits.
The company had announced a comprehensive review of its Family Dollar portfolio to identify stores that are not aligned with its transformative vision for closure, relocation or re-bannering. As part of this review, it identified nearly 970 underperforming Family Dollar stores, including 600 stores to be closed in the first half of fiscal 2024. Approximately 370 would be shut down at the end of each store's current lease term.
Management also unveiled that it had initiated a formal review of strategic alternatives for the Family Dollar business unit, which can include among others, a potential sale, spin-off or other disposition of the business. It has not yet set a deadline or definitive timetable for the completion of the strategic alternatives review process. Also, there is no assurance that this will lead to any particular transaction or outcome.
What’s More to Know About DLTR?
Dollar Tree’s shares have been losing sheen of late. Shares have lost 35.2% in the past three months compared with its industry's 1.3% decline. Apart from the sluggish Family Dollar unit, the company struggles with multiple headwinds, including a tough operating landscape and higher costs. Dollar Tree has been witnessing higher selling, general and administrative (SG&A) expenses for the past few quarters, owing to elevated operating costs.
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In the most recent quarter, SG&A expenses, as a percentage of revenues, were up 200 basis points (bps) from 25.3% seen in the year-earlier quarter. The increase was primarily due to unfavorable development of general liability claims, increased depreciation expenses from store investments, temporary labor in the Dollar Tree unit to aid multi-price rollout, elevated utility costs and loss of leverage from comps increase.
Management, in its last earnings call, had revised its fiscal 2024 view to reflect dismal second-quarter results, including the general liability charge and a conservative sales guidance for the rest of the fiscal year. This also includes incremental start-up expenses related to the conversion of its acquired portfolio of 99 Cents Only Stores leases. The view reflects a challenging macro backdrop, including pressures on customers.
Analysts seem pessimistic about DLTR. The Zacks Consensus Estimate for Dollar Tree’s earnings per share has moved south. Over the past 30 days, the consensus estimate has been revised downward 17.7% to $5.33 for fiscal 2024 and 20.3% to $6.04 for fiscal 2025.
DLTR currently carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
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Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales indicates growth of 13.1% from the year-ago figure. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
Boot Barn, a leading footwear, apparel and accessories retailer, presently flaunts a Zacks Rank of 1. BOOT delivered an average earnings surprise of 7.1% in the trailing four quarters.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 11.6% from the year-ago figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago figure.
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Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
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