Dollar Tree (DLTR, Financials) received a boost from Citi Research, which upgraded the discount retailer to Buy from Neutral, citing the new U.S. tariff environment as a catalyst for price increases and margin expansion.
The brokerage said Monday the higher tariff regime provides Dollar Tree with additional room to raise prices above the $1.25 threshold, a move it first made in 2022. At the time, the change helped drive comparable store sales up 9% in fiscal year 2022 and 6% in fiscal year 2023, while expanding earnings before interest and taxes margin by 220 basis points from 2021.
Citi analyst Paul Lejuez said Dollar Tree now has cover to increase prices to $1.50 or $1.75, potentially enhancing profitability without materially impacting consumer behavior. The company previously struggled to absorb tariffs from China while keeping prices low, but the current climate provides flexibility to shift its pricing structure.
Dollar Tree's stock climbed more than 7% in morning trading following the upgrade.
Citi also revised its rating on Dollar General (DG, Financials), moving it to Neutral from Sell. The brokerage noted that only about 10% of Dollar General's sales are exposed to tariffs, insulating the company from significant disruption. Its business model, centered on value offerings, may help it weather a potential downturn in consumer spending.
Citi set a $101 price target for Dollar General, emphasizing the chain's defensive position amid macroeconomic uncertainty.
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