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Dollar Tree (DLTR) to Expand Multi Pricing at Dollar Tree Plus!

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Post the roaring success of Dollar Tree, Inc.’s DLTR new Combo and Dollar Tree Plus! store formats, driven by strong customer response; the company is gearing up to launch its multi-price evolution strategy. It will test the addition of price points above $1 in certain Dollar Tree Plus! stores before expanding it to all stores.

The company also highlighted that it is progressing well with the target of opening 500 Dollar Tree Plus! stores by fiscal 2021 and 1,500 stores by fiscal 2022. It also plans to expand the Dollar Tree Plus! format to 5,000 stores by fiscal 2024. The stores will offer product assortments priced at $1, $3 and $5. The move comes after some customers demanded a broader product assortment.

The newly launched store format, namely the Combo Store, which features multi-price assortments, is also doing well. Driven by the positive response, it expects the Combo Store to be the key strategic format, anticipating 85% of the newly opened Family Dollar stores to be Combo Stores in fiscal 2022. Dollar Tree currently has 105 Combo Stores and is likely to add 400 more by fiscal 2022, with a long-term target of opening up to 3,000 stores.

The latest development, which is part of its Key Real Estate Initiatives, will help the company to expand its assortments, release products, increase the customer base and improve the shopping experience.

Dollar Tree remains focused on optimizing its store portfolio through store openings, renovations, re-banners and closings. In doing so, it is expanding the footprint of the H2 besides Dollar Tree Plus! and Combo Stores. About 435 Family Dollar stores have been renovated to the H2 format in the second quarter of fiscal 2021. It currently has 3,300 Family Dollar H2 stores. In fiscal 2022, the company expects to complete 800 Family Dollar H2 Renovations as part of the Key Real Estate Initiative. Alongside these, its Crafter’s Square offerings have been performing well. The company is expanding its Crafter’s Square offerings by bringing in essential and seasonal products.

However, the company is witnessing elevated freight costs, which are predicted to persist in fiscal 2021. Freight costs are anticipated to be $1.50-$1.60 per share in fiscal 2021. Additional freight expenses of 60-65 cents per share are also expected, as regular ocean carriers are likely to only fulfill 60-65% of their commitments. Dollar Tree also noted that the spot market rates for ocean freight from China have been significantly greater than the all-time highs.

Driven by the expectations of a further increase in freight costs, the company slashed its earnings per share view for fiscal 2021 on its last reported quarter’s earnings call. Management envisioned earnings of $5.40-$5.60 per share, down from $5.80-$6.05 per share mentioned earlier. The company expected net sales of $26.19-$26.44 billion for fiscal 2021, with low-single-digit comp growth.

We note that shares of this Zacks Rank #5 (Strong Sell) company have declined 20.2% year to date against the industry’s growth of 15.2%.

Zacks Investment Research
Zacks Investment Research

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Wrapping Up

We believe that the volatility in the ocean carriers’ ability to fulfill commitments is not a permanent scenario and the company is taking several steps to mitigate the impacts of freight costs. Continued strength in one-dollar price products and the expansion of Combo and Dollar Tree Plus! store formats are likely to aid Dollar Tree in the near term.

Better-Ranked Stocks in the Retail Space

Abercrombie & Fitch ANF presently sports a Zacks Rank #1 (Strong Buy). It has an expected long-term earnings growth rate of 18%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children’s Place PLCE has a long-term expected earnings growth rate of 8% and it currently flaunts a Zacks Rank #1.

Foot Locker FL, a Zacks Rank #1 stock at present, has an expected long-term earnings growth rate of 4%.

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Dollar Tree, Inc. (DLTR): Free Stock Analysis Report

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Foot Locker, Inc. (FL): Free Stock Analysis Report

The Childrens Place, Inc. (PLCE): Free Stock Analysis Report

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