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Dollar Tree's Strategic Initiatives on Track: Hold the Stock

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Dollar Tree, Inc. (DLTR - Free Report) has been progressing well with its growth initiatives, which include store expansion, enhancement of store productivity, creating new store formats, tapping of new markets and incorporating innovative sales channels. Also, the company remains well positioned to gain from the synergies generated from the Family Dollar integration. Moreover, shares of this Chesapeake, VA-based company retailer have jumped over 11% in the past one year.

Driving Factors

Dollar Tree is well on track with the integration of Family Dollar that was acquired in Jul 2015. As part of its re-banner efforts, the company opened 47 old Family Dollar outlets as Dollar Tree outlets in second-quarter fiscal 2016. Also, it expects to generate annual run rate synergies worth at least $300 million by the end of the third year of this acquisition.

Notably, the company is on track to become a mega U.S. discount retailer that can counter competition single-handedly from retail bellwethers in the dollar-discount store segment. The combined chain, on the completion of the integration, will be positioned to reach out to more value-seeking consumers through a network spanning across vast geographies, coupled with enhanced purchasing power.

Additionally, Dollar Tree’s long-term growth strategy remains intact. Further, we remain confident that the company will continue to implement strategies such as increasing consumables mix, rolling out freezers/coolers at stores, along with multi-price point expansion to boost top-line performance.

Moreover, Dollar Tree is concentrating on expanding its store base and incorporating technological advancements. Also, it leverages an extensive network of stores to effectively penetrate its targeted markets. This will likely enable it to generate healthy sales and gain market share.

Quarterly Performance

After delivering a positive earnings surprise in the preceding quarter, Dollar Tree posted a negative surprise in second-quarter fiscal 2016 as both top and bottom lines lagged estimates. However, both sales and earnings improved substantially on a year-over-year basis. (Read: Dollar Tree Misses Q2 Earnings & Sales; Stock Down)

DOLLAR TREE INC Price and Consensus

DOLLAR TREE INC Price and Consensus | DOLLAR TREE INC Quote

Further, the company posted impressive comparable-store sales (comps) as it recorded its 34th straight quarter of comps growth, primarily on the back of competitive pricing and strategic store expansion plans, including remodeling and relocations.

Following the second-quarter results, management lowered its fiscal 2016 sales forecast, while raising its earnings guidance.

The Overhangs

While the incorporation of Family Dollar is expected to generate synergies in the long run, the increased costs and cannibalization will likely continue affecting results throughout the integration and re-banner process. Also, foreign currency headwinds may pose hurdles.

Given the pros and cons embedded, the stock currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Some better-ranked stocks in the same industry include Burlington Stores, Inc. (BURL - Free Report) , sporting a Zacks Rank #1 (Strong Buy), Big Lots Inc. (BIG - Free Report) and Ross Stores Inc. (ROST - Free Report) both carrying a Zacks Rank #2 (Buy).

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