Dollar Tree's Prospects Appear Promising: Should You Add?

Dollar Tree, Inc.DLTR seems to be well positioned on the back of its long-term strategies and growth initiatives, including store expansion and productivity enhancement as well as tapping of new markets and incorporating innovative sales channels to serve its patrons better. Also, the company will benefit from the synergies generated from the Family Dollar integration, moving ahead.

Dollar Tree is likely to become a mega U.S. discount retailer after the completion of the Family Dollar integration process. This will make the retailer a behemoth that can single handedly counter competition from retail bellwethers in the dollar-discount store segment. Further, the company will be strongly positioned to reach out to more value-seeking consumers, offering multiple assortments at more compelling prices. Also, it will be in a better position to negotiate with suppliers, which is expected to enhance its purchasing power.

Additionally, Dollar Tree is concentrating on expanding its store base, alongside incorporating technological advancements. The company leverages an extensive network of stores to effectively penetrate its targeted markets, which in turn enables it to generate healthy sales and gain market share.

Dollar Tree has displayed remarkable comparable-store sales (comps) performance as it recorded its 35th straight quarter of comps growth in third-quarter fiscal 2016. Comps remained robust mainly due to competitive pricing and its strategic store expansion plans, including remodeling and relocations. Going forward, management anticipates comps to increase in a low single-digit range in fiscal 2016.

Dollar Tree, Inc. Price and Consensus

Dollar Tree, Inc. Price and Consensus | Dollar Tree, Inc. Quote

However, Dollar Tree lowered its fiscal 2016 sales forecast, while narrowing its earnings guidance range in the third quarter. Management projects net sales for fiscal 2016 in the band of $20.67-$20.77 billion compared with $20.69-$20.87 billion expected earlier. Earnings per share are envisioned in the band of $3.67-$3.76 for the fiscal year compared with $3.67-$3.82 anticipated earlier. For the fiscal fourth quarter, earnings are anticipated in the range of $1.24-$1.33 per share.

Further, the company operates in the highly competitive discount retail merchandise sector, which may weigh upon its results. Dollar Tree shares space with Wal-Mart Stores, Inc. WMT , Dollar General Corporation DG and Big Lots, Inc. BIG , among others.

Nonetheless, we remain confident that the company will continue to implement strategies such as increasing consumables mix, rolling out freezers/coolers at stores along with multi-price point expansion, in order to boost its top-line performance. Additionally, in order to improve operating margin, the company is focusing on imported goods, supply chain efficiency and aggressive cost cuts.

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Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report

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Big Lots, Inc. (BIG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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