How do you fix a dollar store? Of course, through price increases. And that’s exactly what Dollar Tree is planning to do to help its stock jump in pre-trading.
is quite steadfast in his desire to live up to his name and charges a dollar for everything in his business. But as logistics costs rise and surpluses become bottlenecks, the company announced Tuesday evening that it would begin selling products costing more than $ 1 in its Dollar Tree Plus stores and testing them in their traditional stores .
The benefits are potentially enormous. “[Comps] Further improvements, store productivity increased, retailers can source new products to improve the customer experience, and the flexibility of the supply chain can be increased, ”writes Jefferies analyst Corey Tarlowe. “We believe the potential for additional flexibility in the supply chain is particularly important given the ongoing cost headwinds DLTR will face in the near future.”
Supply chain problems have hurt dollar stores over the past few quarters. Dollar Tree shares fell 12% on August 26 as the company announced its gains. While profits exceeded expectations, sales fell short of expectations and margins came under pressure due to rising freight costs. As a result, Dollar Tree is lowering its earnings outlook for the full year.
However, the changes do not mean that Dollar Tree will change its philosophy. “It is important that mgmt’s top priority remains“ Value ”, which ultimately determines the outdoor price per SKU (ie USD 1 vs. USD 1.25 vs. USD 1.50 vs. USD 3) and leads the way , increase the customer base and improve sales, increase productivity, make better use of fixed costs and increase bottom line operating profit, ”writes Matthew Boss, analyst at JPMorgan.
There are risks, of course, although they are almost certainly worth the reward. “Some might argue that DLTR’s specialty sauce is the $ 1 price point,” writes UBS analyst Michael Lasser. “We argue that the consumer 1) wants overwhelming perceived value; and 2) a simple pricing structure. Adding an array of price points above $ 1 shouldn’t change the attributes that make DLTR unique. However, it will be crucial to manage this carefully so as not to alienate your customer base. “
Dollar Tree also said it would increase its share buybacks from $ 1.45 billion to $ 2.5 billion, an increase of $ 1.05 billion.
Dollar Tree stocks rose 16% to $ 100.01 in Wednesday’s trading, on their way to their biggest gain since October 2000. They are also well above the 0.4% and 0.5% gains
Dow Jones industry average
Even so, Dollar Tree is at 7.4% in 2021 despite the profit.
Write to Ben Levisohn at firstname.lastname@example.org