Dollar Tree Inc. said it will raise prices on thousands of items by 1 cent each.
The change will take effect at the end of April and is expected to add up to 4% to the company’s revenue, compared with the first quarter. Dollar Tree has been working to bolster its gross margins as sales have been pressured by intense competition and increased food costs. The discount chain reported second-quarter profit on Monday that missed analysts’ estimates.
“The increase in the price level will restore some margin expansion and will maintain Dollar Tree’s image as an affordable ‘everyday low price,’” S&P Capital IQ analysts wrote in a note. Still, they called it a step in the wrong direction for a company aiming to beat aggressive low-price rivals Dollar General Corp. and Dollar Tree. “This is risky, and the company’s ability to pass through this price increase in time to not deplete the margin momentum created in the prior 12 months could be key to the company continuing its uptrend in shareholder value.”
Dollar Tree’s shares rose 0.5% at 12:55pm in New York.
Dollar Tree is the third-largest dollar-store chain in the US, with more than 13,000 stores. Dollar General, the No 1 chain, has said it plans to build at least 1,000 more stores this year.