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Dollar Tree puts focus on value as it attempts to beat retail slump

Dollar Tree on Thursday played down concerns about the ongoing slump in the wider retail industry, saying its focus on value goods should shelter it from the turbulence that has hit rival retailers.

Shares in the Virginia-based company rose 2.7 per cent after reporting upbeat earnings despite diverging fortunes at its banner Dollar Tree and Family Dollar stores.

For the three months to end of April, comparable store sales, a key industry metric, increased 2.5 per cent at Dollar Tree stores, while Family Dollar-brand locations saw a 1.2 per cent decrease. As a result, consolidated same-store sales grew just 0.5 per cent, missing estimates of 0.9 per cent, according to Consensus Metrix.

The company is in the midst of rebuilding its Family Dollar locations — which are mainly in Texas and sell slightly more expensive items than the Dollar Tree — through renovations, developing its private label and investing in refrigerators. It has also been leveraging the size and scale of Dollar Tree to provide higher-value deals that customers respond to.

The company acknowledged increased healthcare costs and delayed tax refunds were creating uncertainty for its customers, who are primarily low- to middle-income. But the company said it was still “well-positioned and in most attractive sector of retail to deliver continued growth”.

Underscoring its confidence, the company raised its full-year sales guidance. It now expects net sales for fiscal 2017 to be between $21.95bn to $22.25bn compared to the previous estimates of $21.94bn to $22.33bn, based on a low single-digit increase in same-store sales and additional store openings.

Total revenue for the quarter increased 4 per cent to $5.3bn over the period in the prior year. Net income, through increased investments, fell 13.8 per cent to $200.5, or 85 cents per share. Analysts had expected 99 cents.