Discount American retail chain Dollar Tree (NASDAQ: DLTR) reported earnings yesterday which more or less met analyst expectations. Reporting earnings per share (EPS) of $0.96 against estimates of $0.97, on revenue of $6.42 billion against an expected $6.41 billion, you might be wondering why the company’s stock price has shot up almost 12% since yesterday.
The answer lies in the company’s announcement that it plans to raise its standard product price from its namesake $1 up to $1.25. This marks the first move above the dollar pricepoint in its 35-year history.
Why does this matter to investors?
This rise in price point has led to the company posting a Q4 outlook that blew analyst estimates away. Dollar Tree offered guidance of revenue hitting a top-level target of $7.1 billion for the quarter, far exceeding the $6.41 highpoint predicted by analysts. This overwhelmingly positive outlook prompted investors to buy-in in their droves, pushing the stock to new all-time highs.
The price rise won’t come as a huge surprise as Dollar Tree had been trialing the increase in a select number of stores. It found that revenue was raised significantly without decreasing store footfall. The rollout will occur rapidly, with all stores expecting to have the new prices implemented by Q1 of 2022.
The move comes at a time where inflation and increasing freight costs associated with global supply chain issues have forced the company to rethink its price model. CEO Mike Witynski was hopeful during an investor call as he stated that “it will also give us the opportunity to bring in new items and a new assortment that will drive traffic in Dollar Tree and will help offset lost traffic from this year.”
So should I buy Dollar Tree stock?
This year’s holiday quarter will effectively act as a litmus test for just how effective this new pricing strategy will be. Dollar Tree is already a very successful Fortune 500 company, so a historic change to how it conducts its business could lead to some consumer unrest. If its customers respond favorably to the change this could usher in a new era of growth for the company. We’ll certainly be keeping an eye on the firm’s Q4 earnings call with a view to potentially investing if the underlying numbers keep improving.
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Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.