Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

My Thesis On Dollar Tree Unfolding

|About: Dollar Tree, Inc. (DLTR)

The $1 price point is very much viable—DLTR continues to convert Family Dollar stores into $1 Dollar Trees.

DLTR’s Family Dollar Store renovation program continues to show success.

Installation of adult beverages should create demand, while (hopefully) limiting serving size and binge drinking.

The proven strategy of rolling out  freezers and coolers into more stores should continue to drive same store sales growth.

The thesis from my January 2019 blog posting appears to be playing out:(

Text below from Dollar Tree’s 4Q2018 Earnings release, with my comments

2019 Store Optimization Program (re-ordered)

  • The Company plans to re-banner approximately 200 Family Dollar stores to the Dollar Tree banner in 2019.

>> That DLTR is converting Family Dollar stores to Dollar Tree stores clearly proves that the $1 price point is viable; otherwise the Company would be converting Dollar Tree stores with the $1 price point into Family Dollar Stores with multiple price points

  • After continued development, experimentation and testing, the Company is very pleased to roll out a new model for both new and renovated Family Dollar stores internally known as H2. This new H2 model has significantly improved merchandise offerings, including Dollar Tree $1.00 merchandise, throughout the store. H2 has produced increased traffic and provided an average comparable store sales lift in excess of 10% over control stores. H2 performs well in a variety of locations, and especially in locations where Family Dollar has in the past been the most challenged. The Company plans to renovate at least 1,000 of these stores this year and will pursue an accelerated renovation schedule in future years.

>> In addition to driving comp store sales up by over 10%, these renovated stores are quite delightful and inviting.  For those who do not have the opportunity to visit an H2 store, please take a look here:

  • The Company closed 84 under-performing stores in the fourth quarter – closing 37 more than originally planned for the year. In fiscal 2019, the Company is seeking to obtain material rent concessions from landlords on under-performing stores. Without such concessions, the Company expects to accelerate its pace of store closings to as many as 390 stores in fiscal 2019 (compared to the banner’s normal annual closing cadence of approximately 75 stores).

>> I view this as posturing with landlords of underperforming stores—it’s basic Negotiation 101

  • Additionally, the Company plans to install adult beverages in approximately 1,000 stores and expand freezers and coolers in approximately 400 stores.

>> The Company certainly has the heft to negotiate smaller servings of alcoholic beverages, which will save customers and (hopefully) limit the servings portions of those who have the propensity to binge drink

>> installing freezers and coolers have been proven to drive comp store sales over the past few years—you can’t have too much of a good thing!

The actions taken in 2019 under the Store Optimization Program alone are expected to provide a comparable store sales lift of up to 1.5% once they have been implemented by the end of fiscal 2019.

>> if all goes as management projects, the Family Dollar comp store sales may turn positive after many quarters of negative comps

Disclosure: I am/we are long DLTR.