Dollar Tree

Moat components and weights: cost advantage 45% weight, score 75; efficient scale 25% weight, score 65; intangible assets/brand and private label 15% weight, score 65; switching costs 10% weight, score 20; network effects 5% weight, score 0. Weighted result ≈64. Cost advantage stems from scale procurement (Greenbrier International sourcing), tight SKU curation, and a low-cost operating model that allows national brands and private labels at opening price points.

Efficient scale benefits exist locally where smaller-box formats fit convenient locations with fast trips. Intangibles include a widely recognized banner, seasonal merchandising know-how, and proprietary labels, but these are less durable than true consumer brands. Switching costs are minimal and network effects are absent.

The moat could strengthen as the multi-price 3.0 format broadens assortment and mark-on while keeping 85 percent of the basket at $2 or less; however, complexity, tariff exposure, and shrink can erode gains over time. Family Dollar’s sale removes a structural drag, improving focus on the core Dollar Tree banner.

Evidence: press releases and filings on 3.0 progress, pricing, and discontinued operations.

Observed behavior shows real, if bounded, pricing power. Management raised base-price points above $1.25 on selected items in 2025 while simultaneously expanding higher tiers ($3, $4, $5 and select items above) without cratering traffic, with Q3 FY2025 Dollar Tree comps up 4.2% and ticket up 4.5%.

That said, customer sensitivity is visible in social forums, and price signage complexity creates friction. The company’s statement that 85 percent of SKUs remain at $2 or less mitigates elasticity risk. Tariffs are a headwind but management has partially offset with sourcing and mix.

Net, pricing power is better than a typical discounter due to format evolution, but not in the class of monopolistic tollbooths.

Predictability improved after exiting Family Dollar. For Q3 FY2025, Dollar Tree’s continuing operations delivered 9.4% sales growth with 4.2% comps; year-to-date comps were 5.4%. The business model has recurring, high-frequency trips and benefits from trade-down in tougher macro environments.

The store base exceeds 9,200 across the U.S. and Canada, and the company is executing conversions to its 3.0 format and opening new units, including former 99 Cents Only locations, which should support steady unit-driven growth.

Exposure to tariffs, wage rates, and shrink injects some variance, but overall trajectory is more stable versus the pre-divestiture mix.

Balance sheet: cash and cash equivalents $594.8 million at Q3 FY2025; long-term debt $2.43 billion and $619.5 million in commercial paper; no borrowings under credit facilities.

Operating cash flow from continuing operations was $958.5 million year-to-date through Q3, with free cash flow of $88.2 million YTD given front-loaded capex; TTM free cash flow ≈ $651 million when adding Q4 FY2024. Dollar Tree redeemed $1.0 billion of senior notes in May 2025 using cash and commercial paper, evidencing access to short-term funding and liability management.

We view net leverage as moderate and comfortably serviceable through cycles. The company pays no dividend, preserving flexibility.

Positives: decisive exit from the low-return Family Dollar business (closed July 5, 2025), heavy opportunistic share repurchases (~15.0 million shares repurchased YTD through Q3 FY2025 with $2.0 billion authorization remaining), and disciplined tuck-in real estate acquisitions of 170 former 99 Cents Only leases and IP to accelerate growth in priority Western markets.

The capex envelope ($1.2–$1.3 billion FY2024–FY2025) is elevated but largely growth- and moat-accretive (multi-price conversions, DC ramp in Ocala and Odessa, and a rebuilt Marietta DC by 2027). Offsetting: the 2015 Family Dollar acquisition was a major misstep; although fully remedied via divestiture, it tempers our view.

No dividend, which we prefer given reinvestment and buyback opportunities.

Leadership is experienced, though tenure is still relatively short in the top roles. Michael C.

Creedon Jr. became CEO in December 2024 after serving as COO; Stewart Glendinning became CFO in March 2025. The team has acted with urgency: strategic review and sale of Family Dollar, multi-price rollout acceleration, and footprint expansion via distressed real estate.

Execution on store labor, shrink, signage, and supply chain complexity will be the litmus test. Governance appears conventional with no founder control.