Dollar Tree executives have bragged to the company’s investors that raising the price cap from $1.50 to $7 will boost profits.
Customers reacted angrily to the news of the higher prices. One said, “Now it’s Seven Dollar Tree and they can raise their prices.”
But CEO Rick Dreiling said: “We are already seeing significant sales growth at the 1,600 Dollar Tree stores that have converted to our newest multi-price format.”
According to CFO Jeff Davis, implementing the $7 limit at more of the budget chain’s 16,000 stores will “result in higher gross profit per transaction.”
The company says the higher price cap will allow it to sell a much wider range of products, including food, snacks, beverages, pet care products and personal care, attracting more affluent customers.
Dollar Tree said in March it would raise the price cap on the items it sells to $7 — and that new “multi-price format” is available in 1,600 of its 16,000 stores
According to Dollar Tree CEO Rick Dreiling (pictured), higher prices are a hit with consumers.
Dreiling made his comments on Wednesday after the budget retailer reported poor profit figures to Wall Street.
The increase in turnover at stores selling more expensive products is not enough to compensate for the general decline in sales.
Dollar Tree has cut its full-year profit and revenue forecasts as customers continue to struggle with higher prices and reduced spending.
Shares fell more than 20 percent on Wednesday, after hitting a 52-week low the day before.
The biggest one-day selloff in Dollar Tree shares in more than 20 years came less than a week after rival discount chain Dollar General also posted a poor quarter and suffered its biggest one-day drop ever.
Dollar Tree is in the process of restructuring its business and said in June that it was exploring options including a possible sale or spin-off of its Family Dollar brand.
Earlier this year, it outlined plans to close 970 Family Dollar stores. Through Aug. 3, Dollar Tree has closed about 655 stores and would close 45 stores for the rest of the year, the company said Wednesday.
The Chesapeake, Virginia-based company expected annual revenue of $30.6 billion to $30.9 billion, down from $31 billion to $32 billion.
Both figures were disappointing compared to Wall Street forecasts, and this was reflected in the retailer’s falling share price on Wednesday.
Most products at Dollar Tree stores cost $1.25, but last year the limit was raised to $5
In March, Dollar Tree announced it would raise the top price on items to $7, as more affluent consumers flock to its stores.
Most of the items the discounter sells still cost $1.25, after the price was raised in 2021 from the previous $1 cap from which the store gets its name.
The company says it hopes to have 2,800 stores with a higher price cap of $7 by the end of the year, up from the current 1,600.
The chain has about 16,000 points of sale and the introduction of a higher price cap – which applies to about 300 items – for all stores will not be completed until next year.