4 reasons why Dollar Tree raises prices above $ 1 but below $ 3 and why the stock is up 30% up front, according to JPMorgan

dollar wood
Dollar wood.

  • Dollar Tree surprised many on Wednesday with its announcement that it would raise the prices of its goods to more than $ 1.
  • Although part of the decision has to do with rising inflation, there are other reasons for the move.
  • These are the 4 reasons why Dollar Tree is raising its prices above $ 1, but below $ 3, according to JPMorgan.
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Dollar Tree shocked many after raising the prices of its goods above $ 1, but Wall Street sees benefits in moving beyond offsetting higher costs. Shares fell Thursday after rising 16% on Wednesday.

The deep discotheque had a long-standing practice of pricing all items on the shelves for $ 1. But the Dollar Tree is not immune to rising inflation, higher shipping costs and supply chain bottlenecks that have ravaged almost every industry since the start of the COVID-19 pandemic last year. Therefore, the company makes it inevitable and raises prices to maintain – if not grow – the bottom line.

JPMorgan analysts see the move as positive for the stock as it will help fuel long-term growth and isolate the company from a further jump in inflation. The bank rates the dollar-denominated retailer for Overweight with a price target of $ 131, representing a potential upward 30% from Wednesday’s close.

These are the four reasons why Dollar Tree is raising its prices above $ 1, but below $ 3, according to a Wednesday note from JPMorgan.

1. “Test & learn process.”

Dollar Tree has seen “validated receipt” among its customers of price points that were above $ 1 at select locations where it tested the price increases.

2. “Dynamic Macro Background.”

Dollar Tree’s price increases account for both transient cost shocks from shipping and supply chain bottlenecks and structural cost shocks, including higher wages and commodity costs.

3. “Improved product range.”

The selective price increases give Dollar Tree more flexibility in adding new and different products to the shelves that customers have requested and with targeted margin thresholds.

4. “Increased grocery flexibility.”

Dollar Tree’s price increases will give merchants flexibility for larger package sizes in an environment where limited stock vendors prioritize more profitable larger package sizes over Dollar Tree’s smaller packages of $ 1.

“It is important that management’s overall priority # 1 remains ‘value’, which will ultimately determine the out-of-the-door price per SKU, citing the potential to grow the customer base, improve sales productivity, make better use of fixed costs and speed up operations on the bottom line surplus dollars, “said JPMorgan.

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