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Dollar Tree $1.25 Price Hike Boosts Odds of Success, Analyst Says

Dollar Tree's plan to raise its prices to $1 to $1.25 'significantly augments the odds of success,' an analyst says.
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Dollar Tree's  (DLTR) - Get Free Report "monumental step" of raising its prices to $1 to $1.25 will increase the discount retailer's chances for success next year and beyond, said an analyst who upgraded the company to buy from hold on Tuesday.

Shares of the Chesapeake, Va., company were soaring 10.3% to $146.12 at last check.

Dollar Tree announced what Michael Witynski, the company's president and CEO, called a "monumental step" of raising the price for the first time in 35 years as the retailer posted third-quarter earnings that were largely in-line with Wall Street's forecasts.

"The $1.25 price point enhances our ability to materially expand assortments, introduce new products and sizes and provide families with more of their daily essentials," Witynski said during a call with analysts, according to a transcript.

 "We will have greater flexibility to continue providing incredible value and help customers get the everyday items they need and celebratory and seasonal products that Dollar Tree is best known for."

Gordon Haskett analyst Chuck Grom upgraded Dollar Tree to buy from hold and introduced a $170 price target, according to the Fly. 

Grom said in a research note that the company's decision to operate at a single $1.25 price point across all stores and most products is a "subtle, yet critical distinction, that significantly augments the odds of success in 2022 (and beyond)."

The analyst also said he believes the higher price point will allow for Dollar Tree to drive an improved assortment over time and battle any future cost pressures that may arise.

Dollar Tree said it plans to introduce the new price point in more than 2,000 additional legacy stores in December and complete the rollout to all stores by the end of the first fiscal quarter of 2022.

Separately, Grom said there has been speculation that former Dollar General  (DG) - Get Free Report CEO Rick Dreiling will join the company's executive team or board. 

The Wall Street Journal reported that the activist investor Mantle Ridge, which has a $1.8 billion stake in the company, is working with Dreiling to get Dollar Tree to change its board to the way rival Family Dollar operates its business.

Dollar General tried to acquire Family Dollar in 2014 when Dreiling was the chief executive. 

Family Dollar put itself up for sale after activist investor Carl Icahn took a nearly 10% stake in the chain. A bidding war ensued between Dollar Tree and Dollar General for the company, with the former ultimately winning.

Dreiling retired from his position in June 2015 after more than seven years at the head of the discount chain.

The analyst said Dreiling's addition would be "a tremendous win."