Dive Brief:

• Dollar Tree On Thursday reported that second quarter net sales increased 4.6% year over year to $5.53 billion while same-store sales increased 1.8%. By banner, same-store sales rose 3.7% at Dollar Tree stores — its fifth straight period of growth over 3.5% — and were flat at Family Dollar, according to a press release.  
• Operating income and margins as a percent of sales both decreased, but the deep discounter said last year's tax cuts helped boost net income by $40.1 million. Earnings and total sales fell short of the FactSet consensus, sending shares down 5% in premarket trading, according to MarketWatch.
• During Q2, the retailer opened 146 new stores and closed 26, the company said. Dollar Tree raised its expectations for 2018 net sales but lowered forecasts for earnings because of new anti-dumping duties on some ribbon products from China imposed by the U.S. Department of Commerce, which the company said will reduce profit by 4 cents per share.

Dive Insight:

Dollar Tree is still working to close the gap between its two banners, as Family Dollar — which the parent acquired in 2015 — continues to show much weaker performance than its sibling.

On a conference call Thursday, CEO Gary Philbin emphasized numerous times the importance of the company's efforts to renovate Family Dollar stores in helping the banner. He told analysts that renovated stores in the company's portfolio show both increased traffic and bigger baskets of purchases. The company plans to renovate 500 stores this year and even more next year, Philbin said.

Also important are operational plans for underperforming stores, training staff and retaining store managers. To the latter point, Philbin said that where the retailer sees "cracks in the dam" are at stores in which managers leave within a year. He added, though, that turnover has improved somewhat, and against the backdrop of a healthy economy with more job opportunities.

Then there are the basic economic problems facing customers of Family Dollar, who tend to be low-income compared to the more middle-class base of shoppers visiting Dollar Tree. Philbin pointed to rising rents and utility bills from a hot summer as inhibitors against spending at Family Dollar stores.

Those consumers also tend to be bigger buyers of consumables at dollar stores, which the company said helped drive a seventh consecutive quarter of positive comps in Family Dollar's consumables business.

Moody's Vice President Mickey Chadha said in emailed comments that his team thinks "management initiatives to improve Family Dollar operating performance will bear fruit in the next few quarters." 

Chadha also pointed to the company's growth overall as demonstrating the relative strength of the dollar store space. "Very good inventory management, relative insulation for e-commerce, compelling price points and convenience make dollar stores a bright spot in retail overall," he said