QUOTE AND NEWS
Motley Fool  Jun 6  Comment 
It's a good time to be in the discount retailing business.
Benzinga  Jun 1  Comment 
Wednesday night BTIG's Alan Rifkin initiated Dollar Tree (NYSE: DLTR) at Buy with a $104 PT.  Integration of Family Dollar will require significant effort by Dollar Tree and the payoff, according to Rifkin, will be a retailer with a complimentary...
Benzinga  May 31  Comment 
BMO has raised the price target of Dollar Tree, Inc. (NASDAQ: DLTR) to $95 from $84 and sees a 7 percent upside in shares, after the discount retailer reported a better-than-expected first quarter and raised 2016's EPS outlook on favorable cost...
Forbes  May 26  Comment 
In early trading on Thursday, shares of Dollar Tree (DLTR) topped the list of the day's best performing components of the S&P 500 index, trading up 9.8%.  Year to date, Dollar Tree registers a 11.4% gain.
Benzinga  May 26  Comment 
Dollar Tree, Inc. (NASDAQ: DLTR) announced better than expected profit for the first quarter. The company also boosted its earnings forecast for the full year while offering a tepid outlook for the second quarter. However, the stock traded more...
Forbes  May 23  Comment 
Investors in Dollar Tree, Inc. (NASD: DLTR) saw new options become available today, for the July 15th expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the DLTR options chain for the new July 15th contracts and...
Forbes  Mar 2  Comment 
In early trading on Wednesday, shares of Ross Stores (ROST) topped the list of the day's best performing components of the Nasdaq 100 index, trading up 4.1%. Year to date, Ross Stores registers a 8.8% gain.
Benzinga  Mar 1  Comment 
Dollar Tree, Inc. (NASDAQ: DLTR) shares are trading higher by $1 at $81.25 in Tuesday's session. The issue was blasted in premarket trading when the company reported a Q4 EPS miss of $0.06 with slightly lower revenues. Following the release,...
CNNMoney.com  Mar 1  Comment 
It's March and investors seem to have a spring in their step!




 

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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