UBS On Dollar Tree: DT Plus Supports Stock's Bull Case

Checks at Dollar Tree, Inc’s (NASDAQ: DLTR) DT Plus! test stores indicate positive customer response and competitive pricing of items, according to UBS.

The Analyst

UBS analyst Michael Lasser maintained a Buy rating on Dollar Tree, with a price target of $120.

The Thesis

Dollar Tree is taking the correct approach by gradually launching DT Plus! test stores in a few locations to better understand the impact of the new items on customer behavior as well as to identify which products resonate with customers and those that do not, Lasser said in the note.

He mentioned that the initiative would likely continue and provide significant value for both customers and shareholders.

Multi-price points could drive sales and the gross margin would likely be in-line with the company’s average of 35% to 36%. This would “help with expense leverage,” as these sales would not require additional labor or other variable costs, Lasser mentioned.

So, overall DT Plus! may deliver high incremental margin of 30% to 40%. The analyst said that in case the company proceeds with a full rollout, it will do so gradually, providing several years of modest same store sales growth.

Price Action

Shares of Dollar Tree traded higher by 15% to $115.60 at time of publishing on Friday.

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