Rick Dreiling needs to convince the retailer's customers to buy more of the merchandise they're not currently buying.
Value-oriented retailer Dollar Tree (DLTR -1.08%) will soon have a new chief executive. Rick Dreiling, who is currently the chain's executive chairman, will officially take the day-to-day helm from Mike Witynski on Jan. 29.
There's no denying he's got the chops. The 69-year-old Dreiling has more than 50 years' worth of retail experience under his belt, including a seven-year stint as CEO of Dollar Tree's chief rival Dollar General (DG -3.12%). The question is, however, can Drieling do something Witynski was unable to do for the subpar-performing discounter? If he can, it's pretty clear where he'll need to start.
Dollar Tree's surprising sore spot
On the off chance you're not aware, Dollar Tree isn't just Dollar Tree anymore. The company acquired Family Dollar back in 2015, combining two distinctly different operations. Family Dollar is a chain of value-oriented stores selling goods at a variety of price points, while Dollar Tree's shtick from its onset was selling everything it offers at the singular price point of $1.
Inflation has since forced that figure up to $1.25. Indeed, in an effort to keep Dollar Tree's assortment compelling enough to keep shoppers coming back as well as combat the impact of inflation, many Dollar Tree stores now sell a small selection of goods for well over $1.25 apiece (although these items are still good overall values). Nevertheless, the Dollar Tree brand has seemingly struggled to find a sustainable balance between its rising inventory costs and customers' long-standing pricing expectations.
Curiously though, it's not the Dollar Tree arm that's weighing on the parent company's profits. It's Family Dollar, and that's despite the chain's pricing flexibility.
The image below tells the tale, comparing the two units' similar top lines and the two chains' oddly disparate bottom lines.
Data source: Dollar Tree. Chart by Author. All dollar figures are in millions.
Here's perhaps the more relevant comparison of each chain's gross margin rates and operating margin rates.
Data source: Dollar Tree. Chart by author.
For perspective, Dollar General's gross margin rates are usually on the order of 31%, while its net operating margins hover around 9%.
There's an explanation for the surprisingly different results being produced by Dollar Tree and Family Dollar: The different mix of merchandise the two business segments sell. Roughly half of Dollar Tree's top line comes from the sale of consumables like food, while the other half is driven by sales of miscellaneous non-consumable goods. Roughly three-fourths of Family Dollar's revenue stems from the sale of consumables, however, where profit margins tend to be thin. The remainder is evenly mixed between home goods, apparel, seasonal, and electronics. These categories tend to be more profitable than food and other items used up on a regular basis. Family Dollar just doesn't sell a lot of this other merchandise.
Worth watching, but not worth the risk of buying
The question remains: Can Dreiling actually do anything about Family Dollar's sales mix that will prevent its already-thin margins from slumping even further? Probably not anytime soon.
To the company's credit, it at least recognizes the problem. During the third-quarter earnings call held in November, CFO Jeff Davis said, "Family Dollar's gross margin declined 100 basis points, largely due to a product mix shift and product cost inflation."
He went on to say, however, "We expect to see continued pressure across both segments related to the inflationary cost environment and merchandise mix as our consumable sales are expected to continue outpacing discretionary." Neither Davis nor Witynski articulated a specific plan to combat pressured margins, other than to say they hope to sell relatively more non-consumable goods going forward.
And given the current circ*mstances, Dreiling may not have an immediate answer either despite decades of retailing experience. As Davis also noted during the call, "the economy continues to pressure middle- and low-household-income customers, resulting in needs-based purchasing [of consumables]" rather than the purchase of higher-margin discretionary goods.
Bottom line? While investors should give incoming Dollar Tree CEO Rick Dreiling the benefit of the doubt, that doesn't necessarily mean they should buy the stock just yet. He'll need to prove he can do what's not been done yet, which is altering the mix of what Family Dollar frequently sells. Until then, investors looking for a value-oriented retailer with the right merchandise mix at the right price being sold using the right business model will want to stick with Dollar General.
James Brumley 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.
FAQs
Dollar Tree's CEO is Rick Dreiling, appointed in Jan 2023, has a tenure of 1.58 years. total yearly compensation is $3.36M, comprised of 40.2% salary and 59.8% bonuses, including company stock and options. directly owns 0.003% of the company's shares, worth $690.12K.
Is Dollar Tree trying to sell family dollar stores? ›
Dollar Tree said Wednesday that it is considering "a potential sale, spin off or other disposition" of its Family Dollar chain of stores. The announcement came just hours before the Virginia-based discount store reported earnings for its first quarter ended May 4.
Who is the new CEO of Dollar Tree? ›
Rick Dreiling
Rick joined Dollar Tree's Board of Directors as Executive Chairman in March 2022 and was additionally appointed to the role of Chief Executive Officer in January 2023. He currently serves on the Board of Directors of Lowe's Companies, Inc.
Why did Dollar Tree stock fall? ›
Shares of Dollar Tree fell after fellow discount-store chain Dollar General cut its guidance for the year and warned of softer sales. The stock was down nearly 10%, to $85.05, in Thursday mid-afternoon trading, bringing year-to-date losses to around 40%. The stock is on pace to close at the lowest level since 2021.
Who is the world's highest paid CEO? ›
The 5 Highest Paid CEOs of 2023
- Jon Winkelried, TPG Inc. ( TPG) Total compensation in 2023: $198,685,926. ...
- Harvey M. Schwartz, The Carlyle Group Inc. (CG) ...
- Hock E. Tan, Broadcom Inc. ( AVGO) ...
- Nikesh Arora, Palo Alto Networks, Inc. ( PANW) Total compensation in 2023: $151,425,203. ...
- Sue Y. Nabi, Coty Inc. (COTY)
Walmart Inc.'s chief executive earned $24.1 million in fiscal 2023, according to a government filing. That's about 933 times the median salary of a Walmart employee, the company said in a disclosure required by law.
Who is merging with Dollar Tree? ›
A New Chapter
We've brought Family Dollar and Dollar Tree together under one roof, starting in small, rural towns across the country that had limited retail options. Our customers love the concept and we are expanding past just small towns.
What is the future for the Dollar Tree? ›
Looking ahead, Dollar Tree plans to open 99 Cents Only Stores as rebranded DT banner stores as early as fall 2024. The analyst sees the opportunity for the opening cadence to be pushed higher as a result, with every 100 stores equating to an incremental ~10 cents in EPS.
What is the Dollar Tree winner strategy? ›
Dollar Tree is implementing a “multi-price” strategy in which it will sell a greater variety of products with the aim of winning over new customers. Over the past year, the retailer has sold groceries that cost $3 to $5. Those goods will be complemented this year by 300 items that cost up to $7 across 3,000 stores.
Why did the CEO of Dollar General get fired? ›
Dollar General Corp. Chief Executive Officer Jeff Owen stepped down after nearly a year in the role during which the shares plunged and workplace safety concerns mounted.
Meet the $1 CEO Club. It might sound uncanny, but it is true: CEOs and former CEOs from major tech companies have or had salaries of just $1. Yes, Elon Musk (Tesla), Jeremy Stoppelman (Yelp), Larry Ellison (Oracle), Meg Whitman (HP), and Steve Jobs (Apple) earn or earned paychecks of just one dollar a month.
Who is Dollar Tree's competitor? ›
Dollar Tree competitors include Walmart, SUPERVALU, Dollar General, Family Dollar Stores and 99 Cents Only Stores.
Is Dollar Tree in financial trouble? ›
Dollar Tree on Wednesday said it plans to close nearly 1,000 stores over the next several years, after disclosing significant losses in its latest earnings report. The discount store chain lost $1.7 billion in the fourth quarter, down sharply from earnings of $452.2 million a year ago.
What is the future of Dollar Tree stock? ›
DLTR Stock 12 Month Forecast
Based on 21 Wall Street analysts offering 12 month price targets for Dollar Tree in the last 3 months. The average price target is $133.22 with a high forecast of $170.00 and a low forecast of $105.00. The average price target represents a 57.12% change from the last price of $84.79.
Who owns the most Dollar Tree stock? ›
Institutional Ownership and Shareholders
These institutions hold a total of 244,397,545 shares. Largest shareholders include Vanguard Group Inc, BlackRock Inc., Mantle Ridge LP, Nomura Holdings Inc, Capital World Investors, State Street Corp, ANCFX - AMERICAN FUNDS FUNDAMENTAL INVESTORS Class A, T.
How much is the CEO of Dollar Tree worth? ›
Witynski has an estimated net worth of $28.5 Million. This is based on reported shares in DOLLAR TREE, INC..
Which CEO makes $1 a year? ›
1. Larry Ellison, Co-Founder and CEO of Oracle. Since 2009, Larry Ellison's salary has amounted to just $1 a year. But, don't feel too bad for the guy—he's also the fifth richest person in the world with a net worth of $43 billion.
How much does a CEO of a $1 billion company make a year? ›
US CEO compensation
By company size, base, bonus, and total cash compensation all rise as revenue does, with total median cash compensation coming in at $1,639,000 at companies with revenue above $1 billion. By industry, CEOs at financial services firms are paid the most: $1,013,000 in median total cash compensation.
How much did the CEO of Dollar General make? ›
Dollar General's CEO is Todd Vasos, appointed in Oct 2023, has a tenure of less than a year. total yearly compensation is $8.98M, comprised of 7.3% salary and 92.7% bonuses, including company stock and options. directly owns 0.062% of the company's shares, worth $16.91M.
