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Why Dollar Tree Stock Surged Today

By Joe Tenebruso – Sep 29, 2021 at 4:35PM

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Higher prices could mean bigger profits for investors.

What happened

Shares of Dollar Tree (DLTR -0.30%) climbed on Wednesday after the retailer said it would boost its stock buyback program and add more higher-priced items to its stores.

As of 3:30 p.m. EDT, Dollar Tree's stock price was up more than 16%.

So what

Dollar Tree's Board of Directors authorized an additional $1.05 billion in share repurchases. That places the total buyback amount at a whopping $2.5 billion, or about 10% of Dollar Tree's current market value. 

"We are committed to a disciplined capital allocation strategy that balances returning capital to our shareholders and investing in our business for growth," CEO Michael Witynski said in a press release. 

A dollar store aisle is stocked with merchandise.

Dollar Tree plans to offer a wider selection of goods at its stores. Image source: Getty Images.

The retailer also announced that it will add items priced above $1 in all its Dollar Tree Plus stores and some of its traditional Dollar Tree stores. The company plans to expand its Plus store format -- which offers items priced at $3 and $5 in addition to its key $1 price point -- by roughly tenfold to 5,000 locations by the end of fiscal 2024. 

"For decades, our customers have enjoyed the 'thrill-of-the-hunt' for value at one dollar -- and we remain committed to that core proposition -- but many are telling us that they also want a broader product assortment when they come to shop," Witynski said. "We believe testing additional price points above $1 for Dollar Tree product [s] will enable us over time to expand our assortments, introduce new products, and meet more of our customers' everyday needs." 

Now what

Like many retailers, Dollar Tree's profits are being dented by higher raw material and labor costs. These inflationary pressures are making it difficult for the company to stick to its traditional $1-per-item prices.

Adding higher-priced offerings will allow Dollar Tree to broaden its array of merchandise, which could boost sales and improve the profitability of its stores. And judging by its sizable increase to its share-repurchase program, Dollar Tree appears confident that the move will also help to strengthen its cash flow generation over time.

Joe Tenebruso 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
$144.66 (-0.30%) $0.43

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