Dollar Tree, Inc. (NASDAQ:DLTR) Is Performing Better Than Other Retailers
Dollar Tree, Inc. (NASDAQ:DLTR) is a brick and mortar retailer whose stock price has suffered from the sell-off in the retail sector despite having a solid operational and growth plan. In this article, I clarify the reasons why I believe that Dollar Tree is immune to the threat posed by Amazon.com, Inc. (NASDAQ:AMZN) in the retail sector.
Firstly, Dollar Tree caters to a unique customer base that does not want to spend more than one dollar on many of their purchases. Given the sluggish economic recovery in the US since the great recession, many people are finding themselves in a difficult financial position where they have to shop at Dollar Tree due to the store’s heavily discounted rates.
In a recent earnings call with investors, the company’s former CEO and current Executive Chairman, Bob Sasser, stated that they had identified possible locations for 26,000 stores in North America. The company is also planning to open about 650 new stores this year in an effort to grow their store base in addition to their existing 14,500 stores.
Quarter two results also indicated that same stores sales were growing at a rate of 2.4%, which is not the case with many brick and mortar retailers. Many physical retailers in North America are suffering from declining foot traffic and same store sales.
The company faces stiff competition from Dollar General Corp. (NYSE:DG), which also operates as a discount retailer, but with a different pricing strategy. Dollar Tree is currently in the process of repaying a $7.2 billion debt, which was accrued during the purchase of Family Dollar in 2015.
Dollar Tree is currently operating profitably with significant levels of free cash flow all of which is being redirected to paying off its debt, as the company does not pay a dividend. The company also stopped its share buybacks as all its profits are being channeled to its servicing its interest payments, but the company should return to share buybacks once it has fully repaid its debt.
It is evident that Dollar Tree is on a stable growth path evidenced by the new store openings and its free cash flow, while also being immune to the growing ecommerce retail industry due to its unique product offering.
The question remains whether Dollar Tree is a good long-term investment for most growth investors.
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