Is Dollar Tree Becoming The $1.25 Store? Here's What Investors And Shoppers Should Know

A leading discount retailer announced quarterly earnings Tuesday morning and also laid out a new pricing strategy that could call into question its namesake brand.

What Happened: Well-known as a store that sells everything for $1, Dollar Tree, Inc. DLTR is changing its pricing strategy in a move that could fight off inflation and also ease pressure from an activist investor.

Dollar Tree, which also owns the Family Dollar brand and stores, announced third-quarter revenue of $6.4 billion, up 3.9% year-over-year.

The company saw same-store sales up 1.6%, led by Family Dollar stores up 2.6% and Dollar Tree stores up 0.6%.

“We experienced a strong finish to the quarter, as shoppers are increasingly focused on value in this inflationary environment,” Dollar Tree CEO Michael Witynski said.

New Price Point: Dollar Tree is transitioning to a base price point of $1.25 in its namesake stores. The company calls this an “appropriate time to shift away from the constraints of the $1 price point.”

Dollar Tree called the new price point a permanent change and not just one due to inflation concerns. The company believes the price point will also allow the company the ability to increase its offerings and bring back some customer favorites that were previously discontinued.

Higher merchandise costs such as freight and distribution along with higher wages were cited as items fought off by the higher prices.

Testing of the new price point was conducted for months and well received by customer feedback, according to the company.

Survey results showed that 77% of shoppers were aware of the new price point in test stores and 91% said they would continue to shop with Dollar Tree in the future despite the higher prices.

Dollar Tree will roll out the new $1.25 price point to more than 2,000 legacy Dollar Tree stores in December. A full roll out is expected to be completed by the end of the first fiscal quarter of 2022.

Related Link: What's In A Name: Dollar Store Model Shifting For These 2 Retailers 

Why It’s Important: Dollar Tree discussed plans to roll out the $1.25 price point and other strategic initiatives earlier this year. The company is working on adding Dollar Plus stores, which feature price points up to $5.

Dollar Tree is also adding combo stores that feature its namesake brand and Family Dollar stores in the same building.

“We believe testing additional price points above $1 for Dollar Tree product will enable us over time to expand our assortments, introduce new products and meet more of our customers’ everyday needs,” Witynski said earlier this year.

The move to rise the base price in stores could be due to inflation and higher costs and also due to pressure from an activist investor. A Wall Street Journal article cites activist investor Mantle Ridge wanting to see improvements on the Family Dollar brand and the pricing strategy at Dollar Tree stores.

Mantle Ridge, which owns $1.8 billion in shares and over 5% of the company, could be pushing for changes from behind the scenes and ready for a more public push. Mantle Ridge is working with Richard Dreiling, the former CEO of Dollar General Corp DG.

With 11 people on the Dollar Tree board of directors up for re-election, Mantle Ridge could seek to make management changes and further push for changes as a top shareholder. The window to nominate directors opens on Nov. 24.

Long term, Dollar Tree plans on having 500 Dollar Tree Plus stores by the end of the year and more than 1,500 by the end of fiscal 2022. Plans call for 500 Combo Stores by the end of 2022 with just over 100 open now.

DLTR Price Action: Dollar Tree shares were up 9.17% to $144.71 at market close Tuesday. Earlier in the day, the stock set a new 52-week high at $149.24, overtaking its previous high of $135.59.

Image by S Cross from Pixabay