Dollar Tree has always operated on the premise that its everyday products are “everyday prices.” But next spring, the discount chain will raise the price of most of its household items to $1.25, the company said Tuesday.
The new prices — and increase — are a direct response to changing shopping habits, Dollar Tree CEO Gary Philbin said in a call with investors Tuesday. Lower gas prices, which have been key to the rebounding economy, have caused people to spend more on grocery bills, bringing down discretionary spending on other things. Amazon.com and other online retailers are making clothes, cleaning supplies and other household products more affordable by sending out bulk shipments.
“There is still opportunity to increase household penetration,” Philbin said. “That is why we’re making the decision to do this.”
The new prices are expected to go into effect by the end of April, and the company said it plans to increase the price of its perishables by $1, moving to $1.20. Dollar Tree currently has 1,902 stores in the Washington region.
Some Dollar Tree stores are equipped with impulse baskets, which hold items without costing more than $1 to buy, and the company will integrate impulse-buying fixtures into more stores.
“We may expand or add them in additional locations,” Philbin said.
The company said shoppers do not seem to mind raising prices on staples, and that the changes will be cost neutral. Still, people who aren’t as price sensitive might make a list of $1 items to buy, Philbin said.
Stores across the country have long priced items near the dollar mark, including Aldi, Walmart and other merchants. Discounters have been retooling their strategies as Americans’ shifting shopping habits lead to an increase in costs, with higher gas prices and other items driving up grocery bills.
Dollar Tree, which employs 45,000 people, earned $178.4 million in the third quarter, or 46 cents per share, up from $143.5 million, or 38 cents per share, a year earlier.
Analysts expected the company to earn 49 cents per share, according to Zacks Investment Research.
The discount retailer’s revenue rose 6.5 percent to $5.35 billion in the quarter. That beat the $5.25 billion analysts expected, according to Zacks.
Dollar Tree also announced that it is splitting off its dollar-geared Family Dollar stores, although those stores won’t be discontinued. Dollar Tree will operate the stores in partnership with another private company, Dollar General. Dollar Tree plans to use the $9 billion in proceeds it gets from the sale of Family Dollar to buy back more shares, invest in remodeling its current stores and pay down debt.
Dollar Tree shares rose $2.36, or 3.4 percent, to $72.50 Tuesday. The shares have risen 53 percent since the beginning of the year.