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Dollar Tree Hits 52-Week High: What's Driving the Stock?

Zacks Equity Research

Dollar Tree, Inc. DLTR hit a new 52-week high of $116.99 on Oct 16, before closing the session a tad lower at $116.90. The company is benefiting from initiatives like the Dollar Tree Plus! test and store-optimization efforts. Further, its robust comparable store sales (comps) trend bodes well.

Notably, shares of this Zacks Rank #3 (Hold) company have increased roughly 37.1% in the past year. In the same time frame, the S&P 500 index, the Retail-Wholesale sector and the Zacks Retail – Discount Stores industry advanced 5.9%, 6.9% and 25.4%, respectively. With a long-term earnings growth rate of 8% and a Growth Score of B, Dollar Tree is positioned to attain new highs.

Factors Narrating Dollar Tree’s Growth Story

The company is testing the addition of merchandise with higher price points to select stores to boost sales and margins through the Dollar Tree Plus! initiative. Currently, it is formulating tests to measure the impact of different price points, items and categories, store profitability as well as affinity of loyal customers for the brand. As part of the tests, the company will leverage Family Dollar and Dollar Tree distribution center systems along with combined merchandise to roll out new products to Dollar Tree stores without operative disruptions. It plans to offer merchandise at price points of $3, $4 and $5. These will be displayed in end caps branded as Dollar Tree Plus! to minimize confusion with the dollar value offerings.

Moreover, the company is undertaking significant store renovation initiatives for Family Dollar to attract more customers, as part of the integration efforts for the brand that was acquired in July 2015. As part of its store optimization program for the Family Dollar brand, it is rolling out H2 — the latest model for the new and renovated Family Dollar stores — internally. It completed the renovation of 542 Family Dollar to the H2 format during the fiscal second quarter. These renovations are likely to boost traffic at stores and drive average comps.

Backed by the success of these initiatives, the company raised its fiscal 2019 target for H2 renovations at Family Dollar stores by 150. It now expects to undertake 1,150 Family Dollar H2 renovations in fiscal 2019 compared with 1,000 mentioned earlier. The majority of H2 renovations will be carried out in the fiscal third quarter.

Apart from these, the company has been displaying remarkable comps performance for a while. Notably, enterprise comps improved 2.4% in second-quarter fiscal 2019 driven by constant-currency comps growth of 2.4% in the Dollar Tree and Family Dollar segments. Competitive pricing along with strategic store expansion plans, including remodeling and relocations, contributed to the comps growth. This marked the 46th straight quarter of comps growth for the Dollar Tree segment. Comps at Family Dollar marked the third consecutive quarter of a rise. Going ahead, the company anticipates enterprise comps growth in low-single digits for the third quarter and fiscal 2019.

The company is also progressing well with restructuring and expansion initiatives that include store openings as well as improvement of distribution centers. It opened 150 stores, including 107 Dollar Tree and 43 Family Dollar stores in second-quarter fiscal 2019. Also, it expanded or relocated 19 outlets (including 17 Dollar Tree and two Family Dollar units) and shuttered 296 Family Dollar as well as nine Dollar Tree stores. It also added freezers and coolers in 210 Dollar Tree stores in the reported quarter, bringing the total store count, with freezers and coolers, to 5,970.

These initiatives put the company on track to reach long-term target of operating 26,000 stores, with more than 10,000 Dollar Tree and 15,000 Family Dollar outlets across North America.

We believe that these efforts will continue to drive the company’s performance and help it reach new highs.

Stocks to Consider

Burlington Stores, Inc. BURL has a long-term earnings growth rate of 7% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation TGT has an impressive long-term earnings growth rate of 7.1% and a Zacks Rank #2 (Buy).

Costco Wholesale Corporation COST has a long-term earnings growth rate of 8.5% and currently has a Zacks Rank #2.

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