Dollar Tree, losing leaves?

Dollar Tree shed half of its value last year, making it one of the worst-performing stocks in the S&P 500, escaping the bottom spot by only 6 places. It also saw as much as a 22% slump in a single day, the largest one-day decline it has experienced in 24 years.

Robert Armstrong, of the Financial Times, had been long on the stock since the beginning of 2024. However, at the turn of the year, he recognised the extent of its decline, stating that “[Dollar Tree] was just taken out to the woodshed and beaten up [..] It was appalling”.

The consensus seems to be that Dollar Tree’s budget-focused business model catering to lower-income consumers has found itself in an extremely difficult macroeconomic environment. 

Mike Creedon, Dollar Tree’s chief operating officer, also attributed underperformance to ‘navigating through one of the most challenging macro environments we’ve ever seen’.

In particular, it has been highlighted that the US is experiencing a K-shaped recovery. This is where one part of the economy recovers whilst another continues to decline (representing the upward and downward stroke of the K respectively). This is an issue for Dollar Tree, as the recovery pattern has been particularly onerous for their target market lower-income consumers who have struggled amidst the rising cost of essentials. 

According to data from the U.S. Federal Reserve, the price of potato chips is up 18% from two years ago.

Peter Keith, a retail analyst, points out that it's not only the customers of value retailers that are disproportionately impacted by inflation, but it's also the stores’ operations themselves. He points out that establishments such as Dollar Tree utilise razor-thin operating models and profit margins, relying on tactics such as intentional understaffing and low hourly pay. This is evidently one of the sources of Dollar Tree’s struggle.

In light of this, Dollar Tree can at least be comforted by the fact that they aren’t the only ones, with other affordable retailers severely underperforming.

The most notable, and Dollar Tree’s biggest rival, is Dollar General who shed over 40% of their value in 2024. The CEO of Dollar General similarly recognised the tough macroeconomic environment as around 60% of Dollar General’s sales come from households earning less than $30,000 a year.

However, Dollar Tree’s performance hasn’t particularly been helped by its business decisions. Such as the botched acquisition of Family Dollar, a subsidiary they are already looking to sell after only a few years.

With inflation ticking back up this year under the trump administration, and the impacts of the China Tariffs on the horizon (a source of many goods sold at dollar stores), it is uncertain how much further budget stores such as Dollar Tree will need to trudge along to find light at the end of the tunnel.