Dollar Tree is planning to work with activist investor Mantle Ridge to boost the shareholder value while accelerating its plans of introducing higher pricing products in some of its stores.
On Monday, November 15, Dollar Tree Inc (NASDAQ: DLTR) was one of the top performers on Nasdaq. Dollar Tree (DLTR) stock gained 15% on the reports that activist retailers are planning for a revamp of its $1 pricing model.
It seems to be the need of the hour as the deep-discount retailer has been struggling with its existing business model. Activist investor Mantle Ridge is keen on driving major changes to Dollar Tree. The activist also believes that these changes will make the stock even more valuable.
Thus, to kickstart this process of transition, Mantle Ridge has acquired a staggering $1.8 billion stake in Mantle Ridge. To assist him with strategy development, Ridge has chosen Richard Dreiling who previously served as the CEO to Dollar Tree’s rival Dollar General.
After moving sideways for quite a few months, the Dollar Tree (DLTR) stock started gaining momentum from late September. This happened as the retailer announced that it would be adding more items above $1 to some of its locations. Mantle Ridge has also proposed that Dollar Tree should proceed ahead in rolling out its higher price strategy in more of its stores.
Over the last 50 days, the DLTR stock has gained more than 50% so far. After Monday’s strong move, DLTR’s year-to-date price gains have also crossed 20%.
The Change in Business Strategy
On one hand, inflation is on a steep rise in the United States. The Consumer Price Index (CPI) for the month of October shot by a staggering 6.2%, the highest surge in three decades. As a result, labor, shipping, and raw material costs are also on a significant surge.
As this happens, it will obviously be difficult for Dollar Tree to rely much on its deep-discount $1 pricing model. Thus, the company plans to sell some products at higher prices thereby giving itself some breathing space along with offering a broad selection of goods to its customers.
Other market analysts have also backed Mantle Ridge’s reported plans. The plans to revamp will further accelerate due to the pressure coming from the activist investor. Recently, UBS analyst Michael Lasser also boosted the price target for DLTR from $120 to $130.
Dollar Tree will be reporting its third-quarter earnings next week on November 23.
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.