QUOTE AND NEWS
Clusterstock  Nov 22  Comment 
Discount retailer Dollar Tree is getting a bump after posting stronger than expected earnings and raising its guidance for the next quarter. The company reported earnings of $0.72 per share, but with a $0.09 per share decrease due to debt...
Benzinga  Nov 18  Comment 
Even with strong headwinds for the discount retail sector, Deutsche Bank Markets Research analyst Paul Trussell maintains a Buy rating and price target of $96 for Dollar Tree, Inc. (NASDAQ: DLTR) ahead of its Q3 earnings report on November...
Forbes  Oct 27  Comment 
Among the underlying components of the S&P 500 index, we saw noteworthy options trading volume today in HanesBrands Inc (NYSE: HBI), where a total of 38,964 contracts have traded so far, representing approximately 3.9 million underlying shares....
Forbes  Oct 25  Comment 
If a school won a stock pitch competition for three years in a row, would you like to know what stock they pitched? Each year, graduate students from across the country come to the Ross School of Business and participate in a stock pitch...
Forbes  Oct 4  Comment 
Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy when others are fearful. One way we can try to measure the level of fear in a given stock is through a technical analysis indicator called the Relative...
Forbes  Sep 30  Comment 
Among the underlying components of the S&P 500 index, we saw noteworthy options trading volume today in Dollar Tree, Inc. (NASD: DLTR), where a total of 27,467 contracts have traded so far, representing approximately 2.7 million underlying shares....
Forbes  Sep 7  Comment 
Looking at options trading activity among components of the Russell 3000 index, there is noteworthy activity today in Whirlpool Corp (NYSE: WHR), where a total volume of 2,947 contracts has been traded thus far today, a contract volume which is...
Forbes  Sep 6  Comment 
There's an old saying on Wall Street about insider buying: there are many possible reasons to sell a stock, but only one reason to buy. Back on August 30, Dollar Tree, Inc.'s Director, Lemuel E. Lewis, invested $124,950.00 into 1,470 shares of...
Forbes  Aug 31  Comment 
Looking at options trading activity among components of the S&P 500 index, there is noteworthy activity today in H & R Block, Inc. (NYSE: HRB), where a total volume of 11,184 contracts has been traded thus far today, a contract volume which is...




 

Dollar Tree Stores (NASDAQ: DLTR) is a discount retailer and the largest retailer offering a fixed price of $1 on all merchandise in its main discount variety stores. The company targets low to lower-middle income consumers and sells everyday products from food and personal care products to non-essentials like toys and holiday decorations.

Unlike other stores in the retail industry, discount retailers like Dollar Tree typically do not suffer during economic slowdowns because lower-class and price-conscious middle-class consumers gravitate towards discount stores in order to save money. The company competes for price-conscious shoppers in an intensely competitive and saturated market, which is dominated by big-box retailers like Wal-Mart Stores (WMT) and Target (TGT) as well as comparable companies like Family Dollar Stores (FDO) and 99 Cents Only Stores (NDN).

Company Overview

The company is able to sell its goods for just $1.00 each by importing 40 to 45% of its products from foreign countries (most of which come from China) and buying 55% to 60% domestically including purchases through closeouts. The company has established close relationships with manufacturers which have allowed them do purchase products at much lower costs.

Business Segments

Each Dollar Tree store carries an average 6,000 items at any given time. The company sells its products in three different business segments:

  • Consumable merchandise (48.1% of net sales): which include candy and food, basic health and beauty care, and household consumables such as paper, plastics and household chemicals and in select stores, frozen and refrigerated food
  • Variety merchandise (46.9% of net sales): which includes toys, durable housewares, gifts, fashion health and beauty care, party goods, greeting cards, apparel, and other items.
  • Seasonal goods (5.0% of net sales): which include Easter, Halloween and Christmas merchandise, along with summer toys and lawn and garden merchandise.

Business Growth

FY 2010 (ended January 29, 2011)[1]

  • Net sales increased 12.4% to $5.9 billion.
  • Net income increased 24% to $397 million.

Trends and Forces

Difficulty in Sustaining Recession-Based Growth

Dollar Tree, as have most other discount retailers, has had higher revenues, net incomes, and same store sales during the recession as consumers look for deals in order to save money. The question though is will discount retailers like Dollar Tree be able to sustain the same levels of growth after the recession has passed. Although Dollar Trees offers its products at a fixed price of $1, it does not necessarily mean that customers are getting the best deal. Not only do other discount companies offer extremely low prices but some may offer higher quality products. When the recession passes there is risk that customers will abandon these discount stores and spend a little more money to buy higher quality goods.[2] If Dollar Tree can retain "trade-down" consumers, the company will have a better chance at sustaining high levels of growth.

Discounters Experience Difficulty Passing on Cost Increases to Customers

Because the company’s low-income customer base is highly sensitive to price and because the company competes largely with a fixed merchandise price of $1, input cost increases (such as inventory, overhead, and marketing) are difficult or impossible to pass on to consumers. Although the company has been able to raise some prices - changing an item that was 2 for $1 to 59 cents apiece, for example - the prices of the vast majority of its goods cannot be increased. Macroeconomic and company specific changes to cost structure, including higher freight costs, rising energy prices, and supplier or distributor consolidation increases the risk of large margin decreases that cannot be offset by price increases.

Competition

Dollar Tree vs. Comparable Dollar Stores

Dollar Tree is a discount retailer that competes with other stores that have similar business models. Thus, the company faces direct competition from dollar-store chains, such as Family Dollar Stores (FDO) and 99 Cents Only Stores (NDN), that sell many of their products at or around $1.

Dollar Tree vs. Big-Box Sellers

As a discount retailer, Dollar Tree faces significant competition from big-box sellers like Wal-Mart Stores (WMT) and Target (TGT), whose enormous scale allows them to extract value in their inventory purchases and pass these savings on to consumers. Dollar Tree Stores, however, attempts to differentiate itself with its smaller-format stores that enable the company to open shop in most rural, small town, and urban markets while incurring fewer overhead costs. Along these lines, the company is more focused on urban areas than Wal-Mart, which has traditionally focused on dominating rural and small-town markets. In some sense, it is more nimble and less concentrated than big-box competitors, but does not necessarily enjoy the same economies of scale. The company's growth going forward is highly dependent on finding attractive new urban stores to add to its existing base, while avoiding opening up in areas already dominated by major competitors, a challenging task given the market saturation of the US discount retailing industry.

References

  1. DLTR 2010 10-K pg. 17
  2. CNBC "Dollar Stores: Are You Getting What You Bargained For?" 14 July 2009
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