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Shouldn't Dollar Tree Have Done Better During the COVID-19 Lockdown?

By Rich Duprey – Aug 14, 2020 at 12:46PM

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The deep discounter has lagged well behind its primary rival.

Few businesses were as beneficially positioned for the coronavirus pandemic as the dollar-store industry, which, as millions of Americans faced unemployment due to lockdowns, helped consumers stretch their limited resources.

While Dollar Tree (DLTR 0.99%) did see an 8% rise in first-quarter sales on a robust 15.5% increase in comparable store sales at its Family Dollar chain, the results were not nearly as good as you might guess. With comps at the namesake brand actually down 90 basis points for the period, it's reasonable to question why it didn't do better.

Shopping cart filled with coins

Image source: Getty Images.

A missed opportunity

Dollar Tree faced a lot of troubles heading into the pandemic, particularly trying to turn around the Family Dollar business, which has been a five-year long drain on its performance following its acquisition. 

So it is ironic that it is Family Dollar that became the star performer during the crisis, though the bar it needed to get over was set pretty low. Dollar Tree also blamed the pandemic for affecting its Easter sales, which it said alone affected the chain's comps by 490 basis points.

The impact is evident on Dollar Tree's stock, which is up little more than 3% in 2020. In comparison, rival Dollar General (DG 3.22%), which hasn't had any misfires, is up over 25%. 

Still, since the World Health Organization declared COVID-19 a pandemic on March 11, Dollar Tree's stock has only lagged Dollar General's gain 17% to 25%, but comparing the two from the stock market's bottom on March 23, Dollar General has pulled further away, rising 41% compared to Dollar Tree's 28% gain.

DLTR Chart

DLTR data by YCharts

It doesn't seem likely Dollar Tree will close the gap with its rival any time soon, not until Family Dollar's retail stores are firmly back on course and its namesake chain can consistently deliver value to consumers and investors.

Rich Duprey 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.

Stocks Mentioned

Dollar Tree Inc Stock Quote
Dollar Tree Inc
DLTR
$151.20 (0.99%) $1.48
Dollar General Stock Quote
Dollar General
DG
$243.96 (3.22%) $7.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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