On Aug. 27, Dollar Tree (DLTR 2.50%) reported earnings for the second quarter of 2020. The company owns both the Dollar Tree and Family Dollar discount-retail chains. Including results from both chains, total net sales increased 9% year over year to $6.3 billion. Net income surged a more robust 45% to $262 million.
Dollar Tree was able to grow its bottom line due to several factors. These include gaining operational leverage from higher sales per location and also offering fewer discounts to its customers. It appears consumers didn't need to be incentivized with better bargains while shopping for the essentials during a global pandemic.
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Family Dollar outperforming
After a Family Dollar or Dollar Tree store has been opened 15 months, the company adds it to its comparable-store (or comp) base. In Q2, comparable sales at Family Dollar went up 11.6%. In the first quarter, Family Dollar's comp sales were up 15.5%. By contrast, comp sales at Dollar Tree were only up 3.1% in Q2, and down 0.9% in Q1.
The Family Dollar chain is clearly outperforming the Dollar Tree chain at the moment. However, the company is pursuing higher growth of the latter. During the quarter, it opened 131 new retail locations from both chains. But for the year it plans to open 500 total stores, consisting of 325 Dollar Tree locations and 175 Family Dollar locations.
Dollar Tree's management withdrew guidance for 2020 after the coronavirus broke out, and it still isn't offering an outlook. However, it's using its improving financial situation to improve the balance sheet. During Q2, it repaid $250 million on its line of credit. It currently has $1.75 billion in cash and $500 million withdrawn on its credit line.
