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Why Dollar Tree Stock Gained 12% in September

By Demitri Kalogeropoulos - Oct 8, 2019 at 10:09AM

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Investors cheered improving results from its Family Dollar brand.

What happened

Discount retailer Dollar Tree (DLTR -0.43%) outpaced the market last month, as its shares gained 12% compared to a 2% increase in the S&P 500, according to S&P Global Market Intelligence. The rally put the stock back in positive territory for the year, up about 25% compared to 18% for the broader market.

So what

September's boost was powered by good earnings news, as Dollar Tree reported improving sales results on the final trading day of August. Its Family Dollar brand notched its third straight quarter of accelerating growth, with comparable-store sales rising 2.4% to match the expansion pace of the Dollar Tree segment. Family Dollar isn't yet performing up to management's high growth hopes, though, which means investors will be looking for improving gross profit margin over the coming quarters rather than the declines they've been seeing in 2019.

Kids selecting candy in a bulk-candy aisle

Image source: Getty Images.

Now what

CEO Gary Philbin and his team are predicting that sales will rise by the same low-single-digit rate over the second half of fiscal 2019 that investors saw over the past six months. As for the longer term, executives believe they're seeing concrete results from their store remodeling initiative and so they now plan to modernize over 1,100 locations this year. Ideally, these investments, plus firming trends at Family Dollar, will lay the foundation for faster sales growth in 2020.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Dollar Tree, Inc. Stock Quote
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