THE EDGE THAT DOLLAR TREE OFFERS – RETAIL

Dollar Tree acquired Family Dollar, a chain of stores catering to the low-income shopper, in 2015.

This action, according to a recent article in the WSJ, has caused the company to suffer from “weak sales, poor product selection and unhappy workers.”  So, let me tell you the real story behind the WSJ story.  To understand this better, one needs to know that the WSJ is adamantly opposed to the tariffs that were recently imposed on China in an effort to right the wrongs of past trade imbalances. Over the course of the last few months, WSJ has run numerous “the sky is falling” stories to forecast how awful this is all going to be.  So, to the real story behind the story:  I saw an interview with Dollar Tree CEO Gary Philbin on Stuart Varney’s show yesterday morning.  And, he was very impressive in responding to Varney’s questions.  Varney congratulated him on Dollar Tree’s recent gain above expectations and asked him how the tariffs would affect the company and its performance.  Philbin commented that they import about 40% of the goods that the company sells in its stores but there are alernative supply chains from countries where no tariffs are imposed and that he had great confidence that they would make it work to everyone’s advantage.  When asked if they would be passing the costs on to consumers, Philbin reminded Varney that everything in the store costs a dollar, so there’s no way to make that increase.  When asked if the closing of the latest group of about 150 stores was in response to the pressures from the tariffs, Philbin responded that, no, the company had been renovating and closing some of the Family Dollar underperforming stores since it acquired that company four years ago, referring to Dollar Tree’s turnaround plan.  Viewers of the Varney show saw a CEO who had a decidedly upbeat approach to tariffs – something that clearly didn’t endear him to the WSJ and, thus, was responsible for the article that appeared later in the day after the show had aired.

In a earlier interview in March, Philbin elaborated further on Dollar Tree’s turnaround plan and the fact that it is currently producing results as more customers choose to shop in its stores.  The company met earnings and revenue expectations and beat same-store sales with a 2.4 percent compared to the 1.4% gain that Wall Street was expecting.  The stock is up about 11% this year.  The company has invested $1 billion to renovate its Family Dollar stores to give them a “wow” factor and the entire enterprise was able to generate about $2 billion of cash flow.  In the March interview with Jim Kramer, CEO Philbin said, “The plan is to get the basics right, great looking store, great product, inject some Family Dollar wow items in there, but the magic [is to put] some Dollar Tree items in there that’s a surprise for the customer when she walks in the store.”  Dollar Tree will be renovating a total of 1,000 stores and still plans to continue closing underperforming Family Dollar locations that will total approximately 390 stores.  Philbin also commented that they have been “very methodical” in paying down debt, which has helped their rates go up.  The locations that got a face lift last year and rebranding to Dollar Tree stores, saw a 10% rise.

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