Last inflation target: Dollar Tree

The company said on Tuesday it would start selling items at $ 1.25 and $ 1.50 in select locations for the first time. It will also add $ 3 and $ 5 items to more stores, expanding an earlier strategy in recent years of moving away from offering only $ 1 products.

Dollar tree (DLTR) has a scavenger hunt atmosphere in stores and caters to middle income suburban shoppers. It mainly offers seasonal products, toys, stationery, home decor, kitchenware and party supplies. The company said its latest measures to raise prices will allow it to expand its assortment and introduce new products.

Dollar Tree CEO Michael Witynski also told the Wall Street Journal that the addition of items above $ 1 was in part a response to the rising costs the chain is facing.

Dollar Tree, which also owns the Family Dollar chain, has launched a new “combo store” concept that features elements of the Dollar Tree and Family Dollar outlets and sells a mix of merchandise. The company said Tuesday it will bring its most expensive merchandise to up to 3,000 of those locations over the next several years.

More recently, higher costs have taken their toll on Dollar Tree. In August, the company lowered its profit forecast for the year, citing the impact of rising transportation costs. Industry retailers faced higher costs during the pandemic, but Dollar Tree’s $ 1 fixed price strategy gave it less flexibility than other chains to raise prices to offset the inflation.

“The Dollar Tree banner is more sensitive to freight costs than others in the industry. Our products are priced below other retail importers,” Witynski said on an earnings call last month. .

Dollar Tree stock jumped about 15% on Wednesday, with some investors betting the moves will help the chain to dampen cost increases.

“While the price of $ 1.00 has been piously held for decades, inflation is expected to stay higher for longer, forcing the difficult but necessary decision to adapt the model,” said Michael Montani, retail analyst at Evercore ISI, in a note to clients. Higher prices will help Dollar Tree manage “pressure on margins from inflation”.

However, the price increase carries the risk of discouraging customers, especially for chains targeting shoppers on tighter budgets.

“Dollar Tree should benefit from changes in its pricing strategy, although we are concerned about customer reaction given their high price sensitivity,” said Joseph Feldman, analyst at Telsey Advisory Group on Wednesday.