When a (Dollar) Tree falls

… in the stock market, should I pay attention?

DollarTree (DLTR) closed down over 22% after announcing Q2 results today. The company missed Q2 earnings, and slashed 2024 forecast.

Interestingly, avg revenue increased, but avg margin decreased.

  • Higher costs at Family Dollar?
  • Higher costs at Dollar Tree stores?
  • Both?
  • Inflation effect?

I occasionally shop at a DollarTree store. Two different locations visited recently have had break-ins (door or front panel glass boarded up). Feel bad for the stores and the employees. I would guess if break-ins were a more frequent case, DLTR would likely have mentioned it.

Other ideas in my port are getting beaten up (but usually not a 22% one-time hit), so maybe I will keep DLTR on my radar.

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We continue to hear that inflation is raising costs faster than income increases. Low end customers are reacting by being more selective in what they buy. Dollar stores tend to serve low end customers.

No doubt one day–maybe when interest rates start to fall–the company will resume its profitable activities. For now the future is uncertain. Will there be a recession? If so more bad news ahead. But otherwise could be good time to buy. Maybe wait for a bottom is you can spot one (correctly). No easy trick as more bad news is likely at least through end of the year. Maybe next April will see a turn around with Easter sales.

I am not there… but I am getting closer to the point that drug stores, dollar stores are un-investable. I need to find a way to close the positions with minimal loss and move on.

If you are convinced the trend is downward, you could sell them short.

If it is short time sure, but a long term short is difficult. That’s for institutional investors. Also, after such a massive decline ( $260 to 80, i.e 70% ) shorting is bad.

With a former rival, 99c Stores, no longer in business, I think there is a market for DLTR. I haven’t visited a Family Dollar location in many years. IIRC, while the chain sold similar items, some of the SKUs were multi-packs i.e. drinks in 6-packs, items in multi-packs (but not quite Costco).

I guess, if I have any serious intentions on DLTR, I should probably visit the other flavor of the brand.

DLTR bought them. They didn’t go out of business.

@Kingran - Well, we might have to agree to disagree - But, IMO, 99c Stores did go out of business.

In the case of my local 99c Store, the physical refrigerator sections and all the shelves were removed from the store. At least to me, that’s a definite “gone out of business” indication.

Yes,

Dollar Tree

As part of the transactions, Dollar Tree also acquired the North American Intellectual Property of 99 Cents Only Stores and select on-site furniture, fixtures, and equipment. May 29, 2024

You are correct they did go out of business or bankrupt. Dollar tree bought only select store leases and will be rebranding those locations to Dollar Tree.

Sorry for the confusion. I am so stuck on the DLTR store expansion, I completely missed the main fact :frowning:

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09/27
Low $70s, not the very bottom - a DLTR nibble for me

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Falling interest rates should help but results might be 6 months away.

An interesting play. Good luck.

I am out of DLTR, with about $500 loss. Now I still have some position in DG, mostly around $95 cost basis. Right now, sitting tight and waiting. Anything that is not in an IRA I will book the losses around the year-end and move on.

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Somewhat ironic, but two items in the abode had issues this week

  1. Light bulb in living room went out
  2. Smoke detector started its periodic alarm ( 9V battery needing replacement)

For #1, I thought I would just get the item from a CVS or Home Depot. CVS was on my route home after breakfast. Until I saw their prices for light bulbs – $8 - $25 per bulb. One of my local Dollar Tree locations is two businesses over from Home Depot. Figured I would try the Dollar Tree first, and if the store didn’t carry light bulbs I would just head to Home Depot. It wasn’t necessary - Dollar Tree had both items.

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$DLTR is hitting 10 year low’s… Where is the bottom?

I realize this is an unpopular theory, but the economy is killing it . The dollar stores do well when times are tough, and when consolidation in an over-built segment is done.

I expect these guys will come back strong at the beginning of the next recession, however many months ahead of us that is. And at that point I’ll probably be a buyer. (Again.)

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From the metrics I am seeing, the dollar store customers are not doing that great, they are not going to $COST, $AMZN or $WMT. They are hurting. Having said that, even with some reduced expectations the stock is at 10x…

Some dollar stores seem likely to survive. The trick is to figure out which ones. Dollar General has lots of stores in rural areas without much competition. Give them time.

Suburban stores find easy competition from other dollar stores and Walmart et al. Consolidation seems to be in order. Some will survive.

Inner city stores may be a challenge. Unemployment. Few jobs. How far can food stamps go. Who are the players? Can they recover?

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In retail, falling or negative SSS is death for the stock price. So “Some stores will survive” is not a good scenario. Dollar stores need a better long-term story. In the short term, a Harris win will remove the Tariff’s overhang and should result in a relief rally as high as 20% to 30%.

But still the long-term story needs clarity. What CVS has taught me is, it is wrong to assume you, investors, you can manage the short-term by astute trading and don’t have to worry about the long-term. If you have a long-term challenge then you don’t know where the shoes are going to drop. If you have long-term growth, you can overcome, if you don’t have a growth story, every rally will be met with sale.

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Retail is especially difficult. There is lots of news. So shares tend to be volatile. And you have constant changes in consumer preferences. Extremely competitive and lots of people trying something new to survive.

But it is a fundamentally cyclical business that goes with the business cycle. If you are willing to sell short, you probably have potential to make money in any situation. But not big opportunities to get rich at it. Just steady returns.

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DLTR announced their chairman and CEO is stepping down. The company elevated COO as interim CEO by and lead director as Chairman and also split the roles. The company reiterated 3Q guidance and confirmed the Family Dollar strategic review on target.

The stock moved up $4.44 or 6.6% in after hours on this news.

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