Dollar Tree for the fourth quarter
Dollar Tree is one name that will certainly sail smoothly through economic turbulence. Dollar stores are great because their merchandise is cheap and consumers are more likely to shop at $1 stores to save money. Unfortunately to maintain cheap prices many dollar stores import goods from China and other manufacturing centers of the world. The recent dollar exchange rate is far more favorable than the rates just a few months ago with the USD coming off its lows against the Euro and the Chinese economy slowing to the point where the yuan gains have been curbed.
Another point of interest is the falling price of crude oil which means even lower wholesaling prices for Dollar Tree and the discount industry altogether. Importing products will be far cheaper due to both a strengthening US dollar and a rapid drop in the price of oil. Though Dollar Tree suffered from an EPS figure 20% lower than last year in the past quarter, next quarter should prove promising.
Dollar stores don’t have much breathing room to begin with. Maintaining a $1 price tag throughout the store means buying in huge bulk orders and moving merchandise quickly. A poor dollar exchange rate hurts dollar stores more than anything as a 20% change in currency values can easily negate profitability expectations. This time around we’re looking for a huge recovery from Dollar Tree after a disappointing quarter. The economics of the industry are certainly on their side as well, people are bargain hunting.
This stock is bound to retest its highs of $44 and $48 per share. If this stock ever splits I think it could get out of its decade long trading range and start moving upward again.
