Dollar Tree to sell items priced above $1 amid rising shipping costs, inflation
Dollar Tree first began testing products priced at $3 and $5 in 2019
Dollar Tree shares have jumped more than 16% Wednesday as the discount retailer plans to sell some products at new price points above $1 at all Dollar Tree Plus stores and test additional price points at more than 100 select legacy locations.
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In 2019, the discount retailer first began testing Dollar Tree Plus locations, which offer an assortment of products at $1, $3 and $5. The company also launched a combo store format in March, combining the Dollar Tree and Family Dollar brands under one roof.
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Dollar Tree president and CEO Michael Witynski says that its 340 existing Dollar Tree Plus stores and 105 combo stores have seen a "positive customer reaction" so far. In addition, he told analysts in August that Dollar Tree Plus stores have seen an overall sales lift of approximately 6%, while larger combo stores have delivered 23% more sales.
"For decades, our customers have enjoyed the ‘thrill-of-the-hunt’ for value at one dollar - and we remain committed to that core proposition - but many are telling us that they also want a broader product assortment when they come to shop. "We believe testing additional price points above $1 for Dollar Tree product will enable us over time to expand our assortments, introduce new products and meet more of our customers’ everyday needs." Witynski said in a statement Tuesday. "Our brand promise is that customers get great value for what they spend at Dollar Tree. We will continue to be fiercely protective of that promise, regardless of the price point, whether it is $1, $1.25, $1.50."
The company is on track to have 500 Dollar Tree Plus stores by the end of fiscal year 2021, with an additional 1,500 Dollar Tree Plus locations planned for 2022 and at least 5,000 expected by the end of fiscal 2024. Meanwhile, Dollar Tree expects to add an additional 400 Combo store locations in fiscal 2022, with the potential for up to 3,000 over the next several years.
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The move comes as Dollar Tree recently lowered its full-year profit outlook, citing higher supply chain and freight costs.
The company now projects that its regular ocean carriers will fulfill only 60% to 65% of their commitments, down from previous guidance of around 85%. It also cited a more than 20% increase in spot market rates for ocean freight from China since its first quarter earnings report back in May.
Dollar Tree said that it now expects an additional $185 million to $200 million, or 60 to 65 cents per diluted share, in freight costs since its May guidance. For fiscal year 2021, Dollar Tree anticipates net sales in the range of $26.19 billion to $26.44 billion and diluted earnings per share in the range of $5.40 to $5.60.