QUOTE AND NEWS
Forbes  Aug 26  Comment 
Last Monday, Dollar General bid $8.9 billion for competitor Family Dollar Stores.   This bid exceeded the $8.5 billion offer offer previously made by Dollar Tree Stores.  The companies are vying to buy Family Dollar Stores, the second largest...
SeekingAlpha  Aug 25  Comment 
By Daniel Jennings: Dollar General's (NYSE:DG) attempt to derail Dollar Tree Stores' (NASDAQ:DLTR) acquisition of Family Dollar Stores (NYSE:FDO) shows that dollar store operators might be in an even more desperate situation than previously...
SeekingAlpha  Aug 21  Comment 
By SA Transcripts: Dollar Tree, Inc. (NASDAQ:DLTR) Q2 2014 Earnings Conference Call August 21, 2014 09:00 AM ET Executives Randy Guiler - IR Bob Sasser - CEO Kevin Wampler - CFO Analysts Paul Trussell - Deutsche Bank ...
TheStreet.com  Aug 21  Comment 
NEW YORK (TheStreet) --Shares of Dollar Tree Inc. are lower by -1.27% to $54.30 in pre-market trading on Thursday, after the company reported its 2014 second quarter adjusted net income of $126.1 million or 61 cents per share, fell short of...
Market Intelligence Center  Aug 20  Comment 
We expect the operator of discount variety stores Dollar Tree Inc. (DLTR) to beat expectations when it reports second-quarter 2014 results on Aug 21. Why a Likely Positive Surprise? Our proven model shows that Dollar Tree may beat earnings because...
Benzinga  Aug 19  Comment 
Carl Icahn discussed Family Dollar (NYSE: FDO) and corporate governance in a phone call to CNBC. Most notably, Icahn said, "I'm not going to be involved anymore," regarding his role as an activist in Family Dollar. "I'm happy we made $200...
TheStreet.com  Aug 18  Comment 
NEW YORK (TheStreet) --aDollar Treea fell Monday afteraDollar Generala outbid the company for fellow dollar store retaileraFamily Dollara . Dollar General offered $9.7 billion, or $78.50 a share, for Family Dollar, while Dollar Tree had...
Market Intelligence Center  Aug 18  Comment 
Friday’s trading in Dollar Tree Inc (DLTR) gives options traders an opportunity for a 11.39% return. By selling the Nov. '14 $57.50 call and buying the Jan. '16 call at the $35.00 level for a net debit of $20.20, traders will book a profit as...
Market Intelligence Center  Aug 13  Comment 
Dollar Tree Inc (DLTR) traded between $54.70 and $55.41 before closing at $54.92 Tuesday and presents some attractive trading opportunities today according to MarketIntelligenceCenter.com's patented algorithms. The computer program that picks...
MarketWatch  Aug 5  Comment 
Family Dollar shares climbed 2.6% and Dollar General shares climbed 4.4% after Bloomberg reported the latter company is mulling a bid for Family Dollar, citing people with knowledge of the matter. The report comes after Dollar Treet last month...




 

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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