Dollar Tree (DLTR), a major discount retailer, has shown it can handle tough economic times and adapt to changing markets.
The U.S. retail sector is gearing up for a tough ride. President Donald Trump’s tariffs are beginning to reshape global trade, such as through a baseline 10% tax on imports from nearly all countries and effective tariffs of 145% on China. Trump has also announced steep “reciprocal” tariffs on many other major trading partners, although he paused those for 90 days as of April 9.
These tariffs will force businesses to find ways to manage rising costs. Economists at Goldman Sachs now see a 45% chance of a U.S. recession, pointing to rising import costs as placing a major strain on the economy.
Dollar Tree, however, is standing out as a surprising contender. The company recently sold its struggling Family Dollar division for $1 billion, boosting its stock by 13% after its Q4 earnings report.
Dollar Tree expects its sales for 2025 to be between $18.5 billion and $19.1 billion, driven by steady store growth. Analysts are optimistic about the stock’s potential, with price targets suggesting it could rise by up to 14% over the next 12 months.
Could Dollar Tree’s focus on affordability and smart strategies make it a standout during these challenging times? It’s worth keeping an eye on this underdog. Let’s dive in.
Dollar Tree Reports Modest Revenue Growth
On March 26, the company shared its fourth-quarter results. Net sales increased by 0.7% to $5 billion, with same-store sales rising 2%, driven by a 0.7% increase in customer traffic and a 1.3% boost in average ticket size.
Adjusted diluted earnings per share hit $2.29, with $2.11 from continuing operations and $0.18 from discontinued operations tied to Family Dollar. Dollar Tree’s resilience is further supported by strategic moves like repurchasing 3.3 million shares for $403.6 million.
However, the stock is under pressure, with a year-to-date drop of 4.2% and a 52-week decline of 44.2%.
Despite this, Dollar Tree’s valuation metrics suggest potential. With a market capitalization of $15.6 billion, the stock’s trailing price-earnings (P/E) ratio stands at 13.1x, while its forward P/E ratio is slightly higher at 13.4x — indicating reasonable expectations for future growth relative to earnings. A price-sales (P/S) ratio of 0.85x highlights its affordability against revenue generation.
Dollar Tree also generated $2.2 billion in net cash from continuing operations and $893 million in free cash flow last year, showcasing strong operations even in uncertain times. This financial stability makes Dollar Tree an appealing investment — a true “dark horse” ready to thrive amid tariffs.
DLTR’s Fundamentals in a Tariff Environment
Dollar Tree’s fundamentals have taken a significant turn. The company recently announced it would sell its Family Dollar business to Brigade Capital Management and Macellum Capital Management for $1.007 billion.
This decision followed a year-long review aimed at addressing inefficiencies and unlocking shareholder value. The sale, expected to close in the second quarter of 2025, allows Dollar Tree to concentrate on its core brand, consistently delivering better margins and stronger performance.
Family Dollar had long struggled with issues like disorganized stores and stiff competition from Walmart (WMT) and online platforms such as Amazon (AMZN), Shein, and Temu. By divesting this underperforming segment, Dollar Tree frees up resources to focus on growth initiatives. These include opening new stores and expanding multi-price formats like $3 and $5 tiers to attract higher-income shoppers while maintaining its appeal to value-conscious customers.
Leadership changes further highlight Dollar Tree’s focus on efficiency and growth. Stewart Glendinning, the new chief financial officer, brings expertise in supply chain optimization from his time at Tyson Foods (TSN) and Molson Coors (TAP).
Wall Street’s Changing Tune
Wall Street’s outlook on Dollar Tree is becoming more positive, with analysts showing growing confidence in the company’s future.
For 2025, Dollar Tree projects net sales between $18.5 billion and $19.1 billion, driven by comparable store sales growth of 3% to 5%. Adjusted diluted EPS are forecast to range from $5.00 to $5.50, although the first half of the year will see a $0.30 to $0.35 drag due to shared service costs tied to the Family Dollar divestiture. Despite these short-term challenges, analysts remain optimistic about the company’s trajectory.
The consensus among 24 analysts surveyed is a “Moderate Buy” rating for Dollar Tree, with an average price target of $81.74, implying upside of approximately 14% from the current price.
Notably, Citigroup recently upgraded its outlook on April 7, raising its rating from “Neutral” to “Buy” and setting an ambitious price target of $103. This represents a potential upside of nearly 45%, underscoring confidence in Dollar Tree’s ability to leverage tariff-driven pricing flexibility and operational improvements.
This wave of upgraded ratings highlights Wall Street’s recognition of Dollar Tree’s potential as a “dark horse” winner amid tariff pressures.
The Bottom Line on DLTR Stock
While near-term challenges may persist, the stock appears poised for upward momentum as it capitalizes on operational improvements and shifting consumer trends.
