Stock Plunge at Dollar Tree: Is It Worth Buying at Discounted Prices?
In a significant move, Dollar Tree, the popular ultra-discounter, has completed the sale of Family Dollar to two private equity firms for around $1 billion. This transaction, which provides a significant cash infusion, allows the company to streamline its core operations amid uncertainties from proposed U.S. trade policy and potential tariff cost increases, estimated at around $20 million monthly.
The first quarter of 2025 (ended March 31) saw Dollar Tree report solid financial results. Net revenue rose 11.6% year-over-year, driven by a 5.4% comparable sales growth and 148 new store openings. Discretionary merchandise sales increased by 4.6%, supporting margins and delivering adjusted EPS of $1.26, up 2.4% from the prior year.
The company guides for full-year comparable sales growth of 3-5% and EPS guidance of $5.15 to $5.65, slightly below 2024's $5.51. This forecast signals a sustainable foundation and addresses concerns about deteriorating profitability. Despite tariff-related cost pressures and integration expenses, the outlook remains cautiously optimistic with potential for long-term growth.
The stock price has responded positively, gaining 3.46% on July 10, 2025, and reaching a new 1-year high. The short-term technical trend is strong, with a forecasted 36.65% price appreciation over the next three months, suggesting bullish investor sentiment in the near term.
Analysts remain mixed but see value in the stock for investors willing to accept some volatility. Piper Sandler upgraded its price target while maintaining a "neutral" rating, and overall sentiment is that Dollar Tree is poised for a move toward more consistent and profitable growth after restructuring.
Despite recent gains, Dollar Tree's stock is down over 40% from its all-time high. This dip, coupled with the company's focus on its core business post-Family Dollar sale, has the potential to offer attractive upside potential for investors with a medium-to-long-term horizon.
In the first quarter of 2025, Dollar Tree's net sales increased by 11% to $4.6 billion. The company has recently introduced price tiers as high as $7 due to inflation. The financial data released by Dollar Tree reflects only the Dollar Tree segment, making it easier for investors to evaluate.
It's important to note that the sale of Family Dollar is not yet complete. However, it's likely that this sale will positively impact Dollar Tree's focus on its core business, potentially contributing to its recent growth.
Dollar Tree, which differs from Family Dollar as it focuses more heavily on non-essential items, struggled to integrate Family Dollar into its operations for 10 years. The sale of Family Dollar is therefore a strategic move that allows Dollar Tree to concentrate on its core business and potentially deliver market-beating returns, potentially surpassing its all-time high in the coming years.
As of this writing, the forward P/E ratio of Dollar Tree is 19, indicating that investors can still add shares without overpaying. The company's net income for the first quarter of 2025 rose 14% compared with the year-ago quarter, to $343 million. For all of 2025, Dollar Tree's management forecasts net sales of $18.5 billion to $19.1 billion, representing a 7% yearly increase at the midpoint.
In conclusion, Dollar Tree’s post-Family Dollar sale outlook is positive, supported by solid Q1 financials and strategic focus on its core business. The stock offers attractive upside potential despite tariff-related cost pressures and integration expenses. Investors with a medium-to-long-term horizon may consider buying or holding, expecting operational momentum and improving profitability to sustain the stock’s upward trend.
- Dollar Tree's solid first-quarter financial results in 2025, with a 11.6% year-over-year increase in net revenue, present an opportunity for investing in the company.
- The sale of Dollar Tree's subsidiary, Family Dollar, to two private equity firms for around $1 billion will help the company focus on its core business, potentially enhancing its long-term growth.
- Owing to the sale of Family Dollar, Dollar Tree is poised for more consistent and profitable growth, with potential market-beating returns that may surpass its all-time high in the coming years.
- Despite tariff-related cost pressures and integration expenses, Dollar Tree's positive outlook, combined with a focus on its core business, makes it an attractive investment opportunity for investors with a medium-to-long-term horizon.
