As people pinch pennies, the Dollar Tree flourishes

While many consumers have struggled in a difficult economy, Dollar Tree Inc. has grown more profitable.

The retailer, based in Chesapeake, on Wednesday reported a 15 percent boost in earnings in its second quarter, as shoppers frequented the all-for-$1 stores to buy everything from Mother's Day gifts to groceries. Net income rose to $37.6 million, or 42 cents per share, for the quarter that ended Aug. 2. For the first half of the year, Dollar Tree also saw a 15 percent increase in its profit, to $81.2 million.

Higher household costs have sent shoppers into the nation's largest everything's-a-dollar chain looking for better prices on food, cleaning supplies and health and beauty products, said Bob Sasser, Dollar Tree's chief executive. In response, Dollar Tree has beefed up its stock of those items, which drove store traffic and sales in the quarter, he said.

While in stores to buy those needed items, customers also bought more party and summer-decor goods and graduation gifts, Sasser said. The company pushed the point with advertising that urged shoppers to "stretch a dollar" and "look what $20 will buy."

"They have to save somewhere," Sasser told analysts Wednesday during a conference call to discuss quarterly results. "And we're taking this opportunity to gain market share by offering more of what they need every day."

To hold more of those "consumables," Dollar Tree has continued to add freezers and coolers to more stores, with 1,089 locations that now have those cold cases up from 873 at the same time last year. Dollar Tree had 3,517 total stores at the end of the quarter.

Sasser said the federal economic stimulus package, which included rebate checks sent to most U.S. households starting in May, "provided some lift to the quarter," though company officials couldn't calculate specifically how much it boosted sales.

Earlier this month, Dollar Tree reported that sales for the quarter grew 12.5 percent to $1.1 billion, and sales in comparable stores jumped 6.5 percent. Comparable stores, open at least 12 months, provide a retailer's best measurement of year-over-year performance.

Shares of Dollar Tree stock closed at $37.94 Wednesday, down $1.24.

Into the rest of this year, high diesel prices - one of the biggest contributors to Dollar Tree's expenses - will likely continue, said Kathleen Mallas, Dollar Tree's vice president and controller. With Thanksgiving falling later in the calendar this year, retailers will lose five shopping days leading up to Christmas, she added.

"The macro-environment remains every bit as difficult as at beginning of year," Mallas said. "We still face an uncertain economy with many pressures on the consumer."

Analysts questioned whether Dollar Tree could sustain its high comparable-store sales increases into the rest of the year. Sasser acknowledged the challenges but added that bad economic times have proved beneficial for Dollar Tree so far.

"We believe we're positioned squarely in the bull's eye of what customers are looking for," he said.

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com