Investment company-activist Mantle Ridge bought about 6% shares of Dollar Tree and intends to change the pricing policy of the store. On the news, DLTR shares exceeded the historical maximum and rose by 14%, to 129 $.
Who is it
Dollar Tree - a chain of cheap stores, where most of the goods are 1 $. And Mantle Ridge is an active investor. Such investors seek positive changes in the management or structure of the company., and then sell the shares at a profit. "We believe, interaction of the Board of Directors, management and interested investors is the best means to achieve the goal”, says the Mantle Ridge website.
Raise prices
One of Mantle Ridge's goals is to bring about a change in Dollar Tree's pricing strategy.. And the retailer has already begun to change it. At the end of September, the company announced, which will expand the range and add goods more expensive than a dollar.
“Due to the dramatic change in strategy, there have been speculations about behind-the-scenes pressure from activists”, — stated in Oppenheimer. According to the investment bank, Mantle Ridge started buying DLTR shares in September, though, rumored, purchases started even earlier.
Raise margins
Mantle Ridge also plans to increase the profitability of Dollar Tree., which has been falling in recent years. One of the reasons for the fall is the failed purchase of the Family Dollar chain of stores in 2015..
Like-for-like sales at Family Dollar stores grow slower, than in Dollar Tree stores. Family Dollar's operating margin is also lower. To remedy the situation, three years ago, Dollar Tree began to close some stores and even rebranded - changing the Family Dollar sign to Dollar Tree.
“Family Dollar had bad management for a very long time.. And there is no magic bullet, to fix it. They have a terrible supply chain and a shortage of goods in stock.”, - said then in the investment company Loop Capital.
As a result, since 2015, the financial results of Dollar Tree began to deteriorate., the company lagged behind competitor Dollar General, and the shares went “walking” sideways.
Interesting fact. To merge the directors of Family Dollar persuaded another well-known investor-activist Carl Icahn. In June 2014, Icahn bought about 9% shares of a troubled retailer, and after three months he sold it for a profit of $ 200 million.
What about stocks
At the end of September, Dollar Tree shares were worth 85 $, like five years ago. And after the decision to raise prices and on the latest news, the shares have already risen by 50%. Deutsche Bank believes, that the paper will continue to grow. Investbank raised the target for Dollar Tree shares from 96 to 148 $.
"Many investors see Family Dollar as a structural problem., хотя мы считаем, that a fresh look may be the one, what you need Dollar Tree", the bank said.
