Company of the Week - November 23, 2008 - Dollar Tree, Inc

Very fittingly in this environment, the company of the week is Dollar Tree (Ticker: DLTR), a deep discounter based in Chesapeake, Virginia. It sells gifts and novelty items at a dollar or less in price. But in the recent years, the company moved beyond themed holiday goods and party knickknacks to sell things people need every day: food, water, household cleaners, health and beauty. They sell brand names as well, like Bumble Bee, Del Monte and Progresso, all priced at a buck. The strategy seems to be paying off, Dollar Tree managing to increase same-store sales in nine of the 10 last quarters. The company will report its earnings on Tuesday, but they’ve already preannounced that same-store sales in the third quarter rose 6.2%. Overall sales grew by 11.6%. Company profit guidance is 40 to 43 cents a share, but analysts are looking for 44 cents. About an year ago, Dollar Tree began accepting Visa in their stores. Visa’s sales contributed a percentage point of sales growth, as Dollar Tree shoppers using Visa cards spend more. The average Dollar Tree customer paying by cash or check spends just $5 to $6, but Visa customers spend $16 to $17 on average. Another paying option, food stamps, is also helping drive traffic and sales. There is plenty of room to grow, according to CEO Sasser. At the end of the second quarter, the chain had 3,517 stores. In just the first half of this year, Dollar Tree opened 133 new stores. In time, it could have 5,000 to 7,000 stores in the U.S, according to Sasser. The newest acquision, Deal$, made in 2006 adds more goods at various price points, a slight departure from the buck-or-less formula. Last year, Dollar Tree added 23 new Deal$ stores, and another 14 were opened this year. Deal$ still represents a small portion of Dollar Tree sales, roughly 6% to 7%. As the consumers are under pressure to tighten their belts, Dollar Tree can prosper for a while.