Dollar Tree raises prices to $1.25, and it says it’s not because of inflation

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Dollar Tree Inc. is raising prices for good, the company announced Tuesday, raising its price point to a quarter of the dollar of the same name.

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The company notes that it has managed to keep prices at $1 for 35 years, including periods of inflation. The decision comes after a testing process that began last summer, and was introduced in September as part of the company’s transformation plan.

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Dollar Tree DLTR,
+9.17%
says that the customer response to the higher prices has been positive. And when Dollar Tree talked about higher prices during its last earnings announcement in September, investors also reacted happily.

,‘Raising the one dollar barrier is an important step for our organization.’,

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— Chief Executive Michael Wittensky

,[Customers] have also indicated that they are seeing price increases across the market and Dollar Tree is still providing the products they need,” Dollar Tree said in a statement.

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The company said the higher price point is a permanent move, not a result of “short-term or temporary market conditions.” In addition, the $1.25 price point allows the company to offer a wider range of merchandise, including items that were discontinued at the $1 level.

Gross margin will also benefit, with the higher price point offset by freight, operating and other costs.

“Accordingly, we have begun offering a $1.25 price point at all Dollar Tree stores nationwide,” Chief Executive Michael Wittensky said in a statement.

$2,000 Tree stores will have higher prices in December, with the rollout complete in the first fiscal quarter of 2022.

“Removing the one dollar limit is an important step for our organization and we are excited about the opportunity to meaningfully improve our buyer experience and unlock value for our stakeholders,” said Wittensky.

Dollar Tree reported third-quarter net income totaled $216.8 million, or 96 cents per share, down from $330 million, or $1.39 per share, a year ago and in line with the FactSet consensus.

Sales totaled $6.415 billion, up from $6.177 billion in 2020. FactSet’s consensus called for sales of $6.411 billion. Enterprise same-store sales grew 1.6%, the Dollar Tree chain grew 0.6% and the Family Dollar chain grew 2.7%. FactSet’s consensus was for a 1.5% increase in the enterprise’s same-store sales.

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For the fourth quarter, Dollar Tree is guiding for sales of $7.02 billion to $7.18 billion and low single-digit same-store sales growth. Earnings per share is expected in the range of $1.69 to $1.79.

FactSet consensus estimates for sales of $7.025 billion, a 1.3% increase in same-store sales, and earnings per-share of $1.74.

The benefits of higher prices are expected to be offset by higher costs as well as store conversions, with the company expanding its Dollar Tree Plus locations, adding combo stores that have both Dollar Tree and Family Dollar merchandise, and more. . Supply-chain disruptions are expected to be a challenge in the near future.

For the full year, the discount retailer forecast sales in the range of $26.25 billion to $26.41 billion, low-single-digit percentage growth in same-store sales and earnings per share in the range of $5.48 to $5.58.

The FactSet consensus calls for sales of $26.258 billion, same-store-sales growth of 0.6% and earnings per share of $5.53.

He added that Wittensky expects the company’s gross margins to return to the 35% to 36% range in fiscal 2022. Its gross margin fell to 27.5% in the third quarter from 31.2% a year ago.

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“The additional price point in Dollar Tree gives us greater flexibility to manage the overall business, especially in a volatile, inflationary environment, while driving customer loyalty and store productivity,” Wittensky said.

“In this environment, we believe that small-box, value retail is more important to millions of households than any other retail sector.”

Dollar Tree stock is up 34% so far in 2021. S&P 500 Index SPX,
+0.17%
An increase of about 25% year on year.

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