Dollar Tree: Distribution center pressure will continue even as supply issues resolve

Dive Brief:

Distribution centers will continue feeling increased operational capacity pressure due to demand volatility caused by the pandemic, even as more U.S. states are reopening and some supply issues are resolving, Dollar Tree CFO Kevin Wampler said on a Thursday earnings call. Same-store sales grew 7% year over year in Q1.
"I think there's going to continue to be pressure on our building; the throughput is very high right now," said Wampler, adding that controlling product flow and costs will continue to be an active challenge through the summer.
Across Dollar Tree and Family Dollar operations, distribution costs increased 30 basis points year over year in the first quarter — one-third of which went to increased worker compensation. The company upped warehouse worker wages by $2 per hour beginning March 8. Personal protective equipment (PPE) also represented a "significant" cost in Q1, according to Wampler. Total COVID-19-related costs, including the front and back-end operations, totaled $73 million in the quarter.

Dive Insight:

The panic-buying phase of the COVID-19 pandemic may be largely over, but essential products, including cleaning agents and paper goods, are still flying off the shelves and, therefore, rushing through warehouses.

Inventory per selling square foot was down for the quarter — down 3% for Dollar Tree and down 7% for Family Dollar, year over year — which executives attributed to increased stock-outs.

"We send the essentials to stores every week. They used to last about two hours. I would tell you now, it's probably lasting between a day and a half to four days depending on who's getting what amounts," said CEO Gary Philbin.

The supply chains Dollar Tree relies on for its goods outside the U.S. have largely recovered from the production delays and freight snarls experienced earlier in the year, Philbin said, but domestic supply chains are still facing challenges related to labor and local operational restrictions. For this reason, the CEO added that Dollar Tree buyers will likely be "chasing" these items, and competing with other retailers to secure them, through July.