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Dollar Tree appeals to ‘cash-strapped’ shoppers after pandemic, says Goldman

Dollar Tree

Dollar Tree (NYSE: DLTR) lagged behind its closest rivals like Walmart (NYSE: WMT) during the pandemic both in terms of sales growth and share price performance, but Goldman Sachs analyst Kate McShane provided a Buy rating amid the view that the retailer is sitting in the right place for changing consumer demand after the crisis.

“We see the dollar stores as well-positioned in this uncertain macro-economic backdrop. The dollar stores bring a powerful combination of value and convenience to the cash-strapped consumer,” Kate McShane said.

With close to 15,000 stores nationwide, Chesapeake-based Dollar Tree saw a same-store sales growth of 7.1% during the first three months of the year, however, sales growth moderated in the second half of March and moved into negative territory during the final week.

The company had reported a same-store sales drop of 19% year over year in the first week of March and the company said that sales remained soft in April and May due to uncertainties related to re-stocking problems and markdowns for certain discretionary products.

However, the Bentonville-based retail giant Walmart reported year over year comparable sales growth of 10% in the first quarter on Tuesday.

Dollar Tree

Investors’ concerns over the slower than expected sales growth during the initial months of pandemic were reflected in the steep drop in its stock price. Dollar Tress shares are down almost 16% since the beginning of this year. The shares are currently trading around $80, indicating a small upside based on Goldman Sachs price target of $89.

Citigroup has also provided a Buy rating while the Telsey Advisory Group assigns a price target of $92.

The company was struggling before the health crisis. Its comparable sales grew only 0.4% in the fourth quarter of last year compared to the consensus estimate for 1.8% growth. The comparable sales rose 1.4% year over year at Dollar Tree-branded stores and fell 0.8% at Family Dollar stores in the fourth quarter.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.