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A Simple Way to Strengthen Your Portfolio

June 29, 2014 | About:
Suravi Thacker

Suravi Thacker

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Dollar Tree (DLTR), a discount retailer, is an extraordinary performer and has been faring well even during the tough conditions. Hence, it can be owned at any point of time. It posted solid results which were ahead of expectations, and brought relief to investors. Let’s dig deeper.

An amazing quarter

Driven by huge demand for Dollar Tree’s low priced necessities, revenue grew 7.2% to $2 billion. The company’s varied priced products not only attracted more customer traffic, but also led to larger purchases made by customers on each visit. This resulted in comparable store sales of 2%. The retailer has made commendable efforts to control costs, which boosted the bottom line by 13.6% to $0.67 per share.

One of the key reasons for Dollar Tree’s growth is its geographical expansion, new retail formats, and various channels of distribution. The company added 94 new stores during the quarter, which led to the amazing growth in the top line. New formats such as Deal$ stores, which offer varied products at different price points, have also been quite successful.

The discount retailer’s direct distribution channel, the E-commerce business, has been performing remarkably well, and hence the company has been focusing on its expansion. With more and more collection being available, website traffic has been improving. The company plans to further enhance this channel going forward.

Apart from offering a variety of products for $1, the company has increased its frozen and refrigerated product portfolio in many of its stores. This has been an added attraction for the customers.

Remarkable performance

Dollar Tree is one of the best performing players in the industry. Its performance, in terms of returns to its investors, in comparison to peers such as Wal-Mart (WMT), Dollar General (DG), and Family Dollar Stores (FDO) will make the picture clearer.

Dollar Tree tops the list with a whopping 220.6% increase in its stock price over the last 5 years. The company’s continuous growth and effective cost management techniques have enabled it to shine brightly.

Even Family Dollar Stores (145.2%) and Dollar General (170.3%) have been able to give great returns, owing to their low prices and customers’ budget consciousness. Family Dollar has been growing largely through addition of new stores. It opened a number of new stores in the last quarter, which shows how the company has been benefitting from increased footfall of customers. It has also renovated its stores to attract more attention of customers.

Dollar General offers a great variety of products for less than $10. It has been adding refrigerated products and various branded toys to lure customers. It has not only restructured its stores, but also plans to add more than 600 new stores this year. Given consumers’ interests in such stores selling merchandise at low prices, these stores might become recession proof.

However, Wal-Mart has not been up to the mark, with only 48.3% appreciation in its price. This is mainly because the company lost its customers to other discount stores during difficult times. Moreover, its cost structure was also heavy, since it operated large format stores. However, Wal-Mart has changed its strategy completely to win back lost customers. It has started opening smaller neighborhood stores which drive higher traffic and are less costly. Also, it plans to provide huge discounts in order to keep pace with the other players in the industry.

Final thoughts

Though all the industry players look attractive, Dollar Tree has been exceptionally good. It has been expanding its presence, and plans to continue to do so. Its growing frozen products and e-commerce business will also help in the future. Because of its low-priced products, the retailer’s market will continue to flourish.

This is not only because of the prevailing conditions, but also because of the fact that there is a vast section of the society which is price sensitive. Hence, owning this company will be a perfect investment bet.


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