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Dollar Tree – The Safest Pick of the Year

June 10, 2014 | About:
Suravi Thacker

Suravi Thacker

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Dollar stores are the safest investment havens since people continue to shop at these stores during economic downturns because of their lower prices. In fact, these stores registered great growth after the recessionary period since people were trying to save each penny of their hard earned money. Such stores continue to perform well even now, giving investors an opportunity to boost their portfolio.

For instance, Dollar Tree (DLTR) reported its first quarter numbers recently which beat the Street’s estimates, sending its share price higher. Let us take a closer look at it.

Snapshot of the Quarter

Revenue for the quarter rose 7% to $2 billion, over last year, just managing to meet the estimate. This top-line growth was driven by the addition of 94 new stores which added to the revenue base. However, it was not only the new stores, but also the increase in sales at the existing stores which drove sales higher. Same store sales during the quarter climbed 2%.

Despite lower mall traffic, because of unexpected harsh weather conditions, the retailer managed to register higher demand for its products. In fact, not only did the company witness higher sales of products in the consumables category, but also in discretionary items which have a higher margin and are expensive.

One of the key strengths of dollar store retailers is they sell products for $1 or less. This attracts customer interests, resulting in higher sales. However, products such as the ones at the checkout counter, stationery and candy sold well during the Easter holiday and the Valentine’s Day.

Earnings too jumped to $0.67 per share from $0.59 per share as the company witnessed higher sales and managed its costs well.

A Host of Plans to Strengthen Its Business Further

Dollar Tree is making a number of moves to expand as well as strengthen its business. Let's explore each of them. First, the company plans to grow its online business which will attract more customers. Also, its Dollar Tree Direct offers more than 2,500 products, without having to have a physical store. In fact, the company registered a sales increase of 19% in its online sales, during the quarter.

Also, the company plans to enhance its frozen and refrigerated product category. Dollar Tree should also benefit from the improvement in weather as spring season is setting in. In fact, the company already experienced growing sales in the month of April where change in weather led to higher store traffic, making sales move north.

The dollar store operator plans to expand its business by opening more stores. It will be adding a total of 375 new stores in fiscal 2014. This expansion in footprint should boost the company’s sales. Additionally, it has been making in-store promotions in order to lure customers. It has re-launched programs such as “stretch your dollar” campaign and “see what $20 buys.” Therefore, this company is set to grow further.

Moreover, the company’s outlook was decent enough with total sales expected to be in the range of $8.37 billion to $8.54 billion. Also, earnings are estimated to be between $2.94 and $3.12.

Bottom Line

Dollar Tree’s performance has been quite interesting. Moreover, its strategic moves look good to go and are expected to be helpful in its growth. Hence, one should not ignore this dollar store company.


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