The Monthly Gems by Allan TongDollar TreeDLTRTOP PICKOct 05, 2020

Today, they reported a fine quarter. Like Walmart, they are starting to appeal to a higher-end demographic.

Attracts lower-income consumers who are searching for value. Glad they finally spun off the weaker Family Dollar business. Projected for 15% earnings growth in 2026 at only 15x PE 2026.

They reported today: sales grew 11.3% and beat and earnings beat. DT reports the highest growth coming from their richest customers, namely over $100,000 annual income. Unlike DG, Dollar Tree could be hurt by Trump's tariffs; TF said that this quarter their earnings could slide 45-50%, then re-accelerate later this year. Also, DT faces pressure from divesting Family Dollar, which didn't work out. Tariffs: DT imports 40% directly from China, so they are heavily exposed.

It reports Wednesday. How much longer can they put a lid on prices, driven up by tariffs? That said, he expect a good quarter, because they got a lot of merchandise before tariffs. But he's worried about guidance--they may need to raise prices.

The merger with Family Dollar never made sense, and he never liked FD. This has led to $8 billion in losses. Shameful. They never had a plan to integrate.

It reports Wednesday. It no longer sells the value in their products, certainly not since Covid. Even Walmart is struggling, so Dollar Tree?

Sold a couple of months ago on poor performance. Questions about health of lower-income consumer have been flagged on conference calls, and this concern is creeping up even to the medium-income consumer. Taking steps to increase price points. An improving consumer would be a tailwind. If he had to choose, this would be his pick.

If Trump slaps tariffs on Chinese goods, the dollar stores will suffer badly.

Retail is tough right now, no matter if you're high end or low. Management missteps reflected in stock price. Falling knife. Might be a bounce for a trade, but not where you want to be for the long run. He's long term, not a trader.

He thinks the problem is that consumers would rather spend at Walmart or Costco.

The consumer is realizing that dollar stars no longer offer bargains. These stores were raising prices aggressively during Covid and can't call themselves dollar stores now. Look at places like Walmart instead for deals.

If company not performing well - would recommend selling. 

US dollar stores are suffering a bit. Lower-income US consumer starting to pull back purchases. Longer term, occupies an attractive niche. In midst of a multi-year change in strategy, adopting a DOL playbook of multiple price points. Uneven path, but generally working well. No dividend.

Also owns FDO, struggling, all options on table including consolidating stores.

Introducing multiple price points, which increases basket size. Its turnaround story was hit by Covid, higher interest rates, and the slowing economy. Less traffic. Fewer discretionary purchases, which hit margins. Reassessing number of Family Dollar stores, which could be reduced. Strategies gaining traction.

The question was on his preference between Dollar General and Dollar Tree in the U.S. Dollar General has cratered so it looks like a buying opportunity but actually isn't since it benefited from the pandemic and may just be returning to normal levels. This also causes him to be cautious on Dollar Tree.