Skip to Content
Stock Analyst Update

We Like Dollar Tree Despite Near-Term Woes

Though the narrow-moat retailer's Family Dollar unit is struggling, we expect the firm's competitive strength to emerge as the unit recovers.


With narrow-moat  Dollar Tree's (DLTR) Family Dollar unit still struggling, we anticipate cutting our $98 fair value estimate by a high-single-digit percentage in the wake of soft second-quarter earnings. While the namesake stores are performing well, posting 4% first-half same-store sales growth, the continued rehabilitation of Family Dollar will lead us to temper our near-term forecasts. Still, we expect the firm's competitive strength based on its brand intangible assets and a cost advantage will emerge as Family Dollar recovers, so we are leaving our long-term expectations (low- to mid-single-digit annual top-line expansion against high-single-digit adjusted operating margins over the next decade) broadly in place.

Through the first half, Dollar Tree posted 4.8% net sales growth against a 7.4% operating margin. The firm adjusted its sales and earnings per share guidance to $22.75 billion-$22.97 billion and $4.85-$5.05, respectively, versus its earlier $22.73 billion-$23.05 billion and $4.80-$5.10 indications and our $22.93 billion and $5.07 preannouncement targets.

Family Dollar (about half of sales) continued to struggle to generate traffic and profitability growth, posting a 0.5% same-store sales decline and 30 basis points of operating margin degradation through the first half. While retail results have generally been strong, we suspect the chain's greater focus on lower-income consumers and operational shortcomings kept it from capitalizing on the favorable environment for the rest of the sector. Given this and an ongoing need for store renovations, personnel investments, and escalating freight and labor costs, we suspect the chain's headwinds will persist in the near term. Still, we expect Dollar Tree should be able to rely on its namesake stores to deliver growth, as we think the combination of low-priced items and convenience will help protect the unit even as the digitization of retail sparks change industrywide.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.