4. Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 38
Year-to-Date Share Price Performance: -53.03%
Dollar Tree, Inc. (NASDAQ:DLTR) operates over 15,000 discount stores under the Dollar Tree, Family Dollar, and Dollar Tree Canada brands. Dollar Tree offers products ranging from $1.25 to $5, while Family Dollar targets lower-income customers with items priced between $1 and $10. The company sells a range of consumables, seasonal items, and general merchandise, including apparel and electronics.
As mentioned by Madison Investments second-quarter 2024 investor letter, Dollar Tree (NASDAQ:DLTR) struggled recently due to several issues, including challenges in the low-income consumer segment, competitive pricing strategies from other retailers, and weak sales at the Dollar Tree brand. Investors reacted cautiously to management’s decision to review the underperforming Family Dollar brand.
Madison added that despite all of it, there is optimism about the long-term potential of the multi-price initiatives at Dollar Tree, and support for management’s efforts to explore options for Family Dollar.
BoFA analyst Robert Ohmes is more bearish on the stock as he said that while the company is promoting value through its multi-price assortment and some successful store transformations aimed at increasing basket size, concerns remain about potential gross margin declines. The multi-price strategy currently contributes only a small share of total sales, and its broader benefits have yet to materialize.
The company is now looking to address its problems as it conducted a comprehensive assessment of its store portfolio to pinpoint locations for closure, relocation, or rebranding, considering market conditions and individual store performance.
Madison Mid Cap Fund stated the following regarding Dollar Tree, Inc. (NASDAQ:DLTR) in its Q3 2024 investor letter:
“The bottom five detractors for the quarter were Dollar Tree, Inc. (NASDAQ:DLTR), MKS Instruments, PACCAR, Copart, and Amphenol. Dollar Tree underperformed following disappointing sales at the core Dollar Tree banner and reduced full year earnings guidance. The company, as well as its closest peers, is facing headwinds from a weak low-end consumer, less ‘trade-down’ benefit from middle-income consumers, and a tough competitive environment. Despite these headwinds, we are encouraged by the long-term prospects of the multi-price initiatives at the Dollar Tree banner, with the latest iteration of updated stores showing a strong up-lift in sales. As management more aggressively rolls out these updates, the impact to the company will be more meaningful, and, we believe, result in much higher earnings power.
The headwinds outlined above impacting Dollar Tree’s business has resulted in the stock trading at depressed levels. Given our confidence in the core strength of the Dollar Tree franchise and its potential long-term earnings power, we added to our holding.”
