Companies employ people and, very often, different people have different opinions on the best way to do things. Which is why, sometimes, the C suite of a company starts to look like an episode of a soap opera, which is exactly what's been going on at Dollar Tree (DLTR 0.71%) for the past year or so.
The most recent change, at the CEO level, signals that this drama is likely over. Here's what investors need to know about the changes.
Almost nothing is a dollar
In some ways, Dollar Tree's problems stem back to its name, which was used because everything in the store was, at one point anyway, priced at a dollar. That was the reason for consumers to go in: cheap stuff! And while some of that cheap stuff was more novelty than value, other things were actually great value for money. Dollar Tree used this model, offering a mixture of great values and fun novelties all sold at $1, to build a business with thousands of locations across the United States.
Image source: Getty Images.
But inflation made the company's pricing commitment an increasingly difficult burden. And that was true before the 2022 inflation spike, as evidenced by the fact that the company began to increase its prices more than a year ago. The first big step was breaking the buck, pushing most items to $1.25. That's a tiny change on an absolute basis, but it's 25%. That's big.
It wasn't the end of the change, either, with stores now selling some items that cost up to $5. Dollar Tree really isn't the same store that it was just a couple of years ago. All of these pricing changes took place under the previous CEO, Mike Witynski, who had been at the helm since 2020.
Changes along the way
But it wasn't just the store's pricing approach that changed. In late 2021, the company began working with a dissident shareholder, Mantle Ridge, an investment firm that, effectively, wanted to bring in a new board of directors. Mantle Ridge believed that a board refresh would help to improve the company's financial performance.
Although Mantle Ridge didn't get all that it wanted, the board was "reconstituted" in early 2022. Five board members remained, five were replaced, and the company notably highlighted that "distinguished retail executive Richard Dreiling" was joining Dollar Tree as Executive Chairman, working with Witynski to help improve the business. That's important because Dreiling is the former CEO of Dollar Tree competitor Dollar General. Getting Dreiling on the board was a particularly important goal for Mantle Ridge, given his prior experience in the dollar store space.{https://www.retailtouchpoints.com/topics/market-news/dollar-tree-settles-with-activist-investor-appoints-former-dollar-general-ceo-to-lead-board }
Following this board revamp, Dollar Tree announced a string of other top level managerial changes. A number of the new executives had previously worked for Dollar General. The changes include the CFO, chief merchandising officer, and chief information officer, among many others. Essentially, over the past year or so, the entire leadership team, with the exception of the CEO, was turned over.
Finally, in mid-January the company brought in Dreiling as CEO, replacing Witynski. With the heavy lifting done on pricing and Witynski having onboarded all of the new C suite hires, the timing seems fairly appropriate. Note that Dreiling had been working with his predecessor on updating the business.
Interestingly, the change was made before fourth-quarter 2022 earnings results were announced, as well, meaning that Dreiling will start 2023 with a completely clean slate.
A different company
At the end of the day Dollar Tree is no longer the same company it was on a business and personnel level. Dreiling seems well-regarded, so there doesn't appear to be reason for concern on that front, though a new CEO often brings a new management approach. That said, it wouldn't be surprising to see the fourth quarter filled with one-off items, so 2023 is really a clean start for the new CEO. If you own Dollar Tree or are looking at it, make sure you pay very close attention to the upcoming quarterly conference calls.
There's a new direction taking shape at this company and it will likely be very different from what existed in the past.
