Dollar Tree Inc. DLTR, +16.29% stock soared 16.3% in Wednesday trading after the discount retailer announced it would be testing higher-priced merchandise in its Dollar Tree and Dollar Tree Plus stores.
The rally pushed the company’s shares above $ 100 during the trading day.
In March, the company announced a number of changes and additions to store formats and the merchandise lineup, including expanding the rollout of Dollar Tree Plus, which offers items priced higher than $ 1, and additional Dollar Tree/Family Dollar combination stores.
The combo stores target small towns and rural communities with populations of 3,000-to-4,000 people where shopping options are more limited.
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The company is on track for 500 Dollar Tree Plus stores by the end of the fiscal year, which will have merchandise priced at $ 1, $ 3 and $ 5. At least 5,000 stores are expected by the end of fiscal year 2024.
There are currently 105 combination stores, with 400 additions expected in fiscal 2022 and the potential for 3,000 in the next few years.
“For decades, our customers have enjoyed the ‘thrill-of-the-hunt’ for value at one dollar — and we remain committed to that core proposition – but many are telling us that they also want a broader product assortment when they come to shop,” said Chief Executive Michael Witynski in a statement.
“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.”
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Dollar Tree also announced a $ 1.05 billion bump in its share buyback program, bringing the total amount authorized to $ 2.5 billion.
“Our brand promise is that customers get great value for what they spend at Dollar Tree,” Witynski said. “We will continue to be fiercely protective of that promise, regardless of the price point, whether it is $ 1.00, $ 1.25, $ 1.50.”
UBS analysts think there are a number of benefits of raising prices for Dollar Tree, and the retailer still won’t lose its pricing advantage.
“The fixed price point has become restrictive over the years as inflation has
eroded the purchasing power of $ 1,” analysts said.
“Now, the company can offer products that it had to eliminate in the past such as bleach or cloth towels. Further, it can add more value while it maintains a wide pricing gap with others.”
UBS rates Dollar Tree stock buy with a $ 120 price target.
Dollar Tree stock has tumbled 7.1% for the year to date while the benchmark S&P 500 index SPX, +0.24% has gained 16.3% for the period.