Mike Witynski
President and Chief Executive Officer at Dollar Tree
Thank you, Rick, and good morning, everyone. Thank you for joining us today. We are dialed in today from our Annual Field Leadership Summit. More than 1,000 leaders, including every district manager in the company, have gathered for several days to learn, collaborate, and focus on all things Family Dollar and Dollar Tree. This is our first large in-person meeting since 2019. The energy and excitement here makes me and each of us more inspired than ever. We will transform our culture and company, and we will do this together. Rick just mentioned that we are moving at a fast pace. The theme of our leadership summit is, in fact, Lead with Speed. I want to publicly thank all of our participants for their commitment, dedication, and focus while attending this great event. I'm proud to be part of your team.
At these meetings, we typically talk about our company's strategy and share proof points of our collective successes. But this year is different. This year, I'm speaking to our leaders about something no less important than strategy. It's our company's culture. Every retailer has a playbook when it comes to strategy. But what sets the winning companies apart is their culture. Just as Rick mentioned, we are committed to developing a culture of accountability, empowerment, courageous leadership, transparency, and fostering two-way dialog. We have recognized and acknowledged to ourselves that we have substantial opportunity for improvement in this respect. We have the courage to address this head on, and we will deliver the culture necessary to provide our associates, the customers, and the shareholders, the greatness they deserve. Also at this summit, our field leaders got their first look at the initial holiday buys purchase for the new $1.25 price point. We are all excited by the compelling and relevant assortment sourced by Rick McNeely's Dollar Tree merchant team and are very confident our shoppers will be wowed by these new items and the great values over the upcoming holiday season.
We are undergoing a period of change, exciting change, and we have accomplished a great deal in what I would call the first 100-plus days since our board was reconstituted. A few months ago, we announced a number of leadership changes. We are actively engaged in recruiting leaders to the organization with the right perspectives, experiences, and skillsets to help transform our company. The great opportunity before us has attracted the attention and interest of the strongest leaders in retail. In just a few months, we have already filled several key roles with exceptional talent, including Larry Gatta as Family Dollar's Chief Merchant; John Flanigan as our Head of Enterprise Supply Chain; and Bobby Aflatooni now leads our Enterprise IT department. This morning, we announced that Jeff Davis will be joining Dollar Tree as our new CFO. Jeff has many years of experience as a retail CFO and spent nearly a decade in executive leadership roles with one of the largest retailers. And we have carefully reviewed a field of exceptional candidates for our COO and General Counsel executive roles. The teams are gelling and the new leaders are hitting the ground running. I look forward to sharing upcoming announcements as we round out the executive team for the next waves of growth and transformation for Dollar Tree and the Family Dollar business. In light of the substantial leadership changes, I felt that we could deliver a more useful and productive event if we deferred our Investor Day from October until the spring of 2023. We will share more details on the event as it takes shape in the months ahead.
Our second quarter performance reinforces the relevance of our brands for millions of households as they continue to face cost pressures across the board. The team delivered increases of 6.7% in sales, 14.2% in gross profit, 25.7% in operating profit, and 30.1% in EPS, while successfully navigating through another quarter of macro uncertainty. Now to Q2 performance by banner. I am pleased with the quarter delivered by Family Dollar team. A positive 2% comp represented an acceleration from Q1 on a one-, two- and three-year stacked basis. A 3.3% increase in average ticket more than offset a 1.2% decline in transaction count. Same-store sales were relatively balanced throughout the quarter as monthly comps range from a positive 1.5 to a positive 2.5. Despite supply chain challenges in OTC-related categories, the consumables comp increased 4% for the quarter. Discretionary comps declined 4.1% as shoppers continue to manage through this inflationary environment. Compared to the prior year's quarter, we saw 150 basis-point swing in product mix from discretionary to consumables. In Q2, consumables represented 77.3% of Family Dollar sales compared to 75.8% in Q2 of 2021.
The turnaround of Family Dollar is an enormous value creation lever and it is getting a great deal of focus and attention. Components of the transformation include, as Rick mentioned, a focus on our people, the DC network and supply chain, pricing and the value proposition, as well as our technology. Additional factors include enhancing our culture, elevating store standards, developing our private brands, improving category adjacencies, enhancing the product mix, optimizing vendor partnerships, and much more. We are pushing forward on each one of these fronts. We are still early in this journey, but I am enthusiastic about the progress we have made just in the last few months. I want to call out, in particular, the important initiative we have taken on our pricing at Family Dollar. With the recent price investments, we believe Family Dollar is now in a better competitive position on price than it has been for over a decade. We will continue to refine the Family Dollar value proposition to drive store traffic and productivity, and we will fully expect to see great benefits from these and other actions over time.
During the quarter for Family Dollar, we opened 95 new stores, renovated 257 stores, and relocated 24 stores. We ended the quarter with more than 540 Combo Stores, which continue to resonate with the shoppers while driving more productivity and more profitability. Moving now to the Dollar Tree segment. The Dollar Tree banner delivered another strong quarter. Among the highlights: a 7.5% comp; a 37.4% gross margin, 500 basis points above the prior year's quarter; and a 15.4% operating margin, more than 500 basis points over Q2 of last year. The 7.5% comp sales increase was driven by a 14.2% increase in average ticket, partially offset by a traffic decline of 5.8%.
Importantly, the consumable business at Dollar Tree was strong. Consumables, which represented 46.8% of the mix in Q2 comped at 7.9%, while discretionary increased 6.7%. The last time the consumable comp exceeded discretionary was at the onset of the pandemic in Q1 of 2020. This demonstrates the success we are seeing in key traffic-driving categories where our merchants have been active in enhancing value, such as carbonated beverage, snacks and cookies, and food. As a reminder, our reassortment in consumables has been more immediate than the discretionary merchandise given the purchasing cycle, and our sales performance demonstrates that shoppers are reacting favorably to refine the value proposition.
Renewed consumables momentum is a good indicator for our continued long-term health of the Dollar Tree banner. The discretionary side of the business was strong despite the negative impact of the limited global supply of helium, which hindered sales of balloon products and the party-related merchandise. Regarding cadence, similar to Family Dollar, comps were relatively balanced throughout the quarter with each month's comping increasing between 6.5% and 8.5%. During the quarter for Dollar Tree, we opened 32 new stores and relocated 5 stores and we added multi-price assortment to another 697 stores, bringing the total to 2,170 stores as we head into the back half of 2022 and the important holiday season.
I would like to speak to what we are seeing in the business as consumers continue to be burdened by levels of inflation not experienced in decades. Overall, sales performance remains in line with our expectations. And in fact, we have modestly increased expectations for Family Dollar for the back half. There are signs of trade down to our stores, and we are focused on value proposition for both banners in this environment. Like many retailers, we are seeing a shift in consumable preferences as many shoppers are gravitating to needs-based consumables, which is impacting our margin through product mix. Our suppliers are being hit by inflation as well. This, along with our commitments to competitive pricing and the value proposition, is expected to negatively impact our gross margins in the near term. Over time, we believe our business should be able to protect its merchandising margin from inflation effects. And regarding supply chains, from a sourcing perspective, a year ago, we had a backlog of thousands of containers we were working to get through the transpacific shipping lanes. This year, we have a small, manageable backlog.
Kevin will go into more detail regarding our updated outlook for the back half of the year. Our outlook will be reduced with most of the guidance reduction related to the Family Dollar as we take action to improve that banner. Of the total, more than half of our guidance reduction is due to pricing actions taken at Family Dollar. The remainder is due to mix shift differences and inflationary cost increases on consumables at both banners. None of this dampens my enthusiasm for our long-term prospects.
I'll now hand the call over to Kevin to provide more color on Q2 and our updated outlook.
