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Shares of Dollar Tree Inc. (DLTR) fell more than 2% on Tuesday after Jefferies downgraded the discount retailer’s stock to Underperform from Hold and slashed its price target to $70 from $110.

The downgrade reflects mounting concerns over inflationary pressures, tariffs, and intensifying competition that, according to the research firm, have complicated what was once a straightforward business model.

“Inflation, management decisions, and tariffs have turned a simple business model into a complex one,” analysts at Jefferies wrote in a research note.

Dollar Tree shares were recently down 2.61% to $85.39, marking their lowest level since May 19.

Jefferies said the retailer faces multiple headwinds, including margin pressure, increased competition, and macroeconomic challenges, all of which could weigh on profitability ahead of the company’s Investor Day on October 15.

The firm also revised its earnings forecasts for the discount chain, cutting its 2025 per-share earnings estimate by 6% and its 2026 projection by 9%.

Competitive edge eroding amid pricing pressure
 

Jefferies’ downgrade highlighted Dollar Tree’s diminishing pricing advantage relative to major competitors such as Walmart and Dollar General.

The analysts found that shopping bills at Walmart were on average 7% lower than at Dollar Tree when comparing identical items and pack sizes.

The report added that 87% of Dollar Tree stores are located within five miles of a Walmart, while 83% are near a Dollar General — underscoring the brand’s exposure to increased competition in the discount retail space.

“DLTR’s differentiation is eroding, leaving its multi-price strategy exposed,” the analysts said, referring to the company’s transition away from its traditional single-price model.

The retailer has been expanding its multi-price offering, which now includes products priced between $3 and $7, in an effort to diversify its product range and offset rising costs.

However, Jefferies noted that this shift could be weakening the company’s core value proposition as consumers seek lower-priced alternatives amid persistent inflation.

Meanwhile, Dollar General is moving in the opposite direction — expanding its $1 assortment to 2,000 products and enhancing its selection with fresh produce, reinforcing its low-cost image among budget-conscious shoppers.

Sector under pressure ahead of investor day
 

Dollar Tree’s challenges are emerging at a time when the broader discount retail sector is facing increased scrutiny from investors.

Walmart (WMT), Dollar General (DG), and Five Below (FIVE) shares were also trading lower on Tuesday, falling 0.7%, 0.6%, and 5.5%, respectively.

Despite Tuesday’s drop, Dollar Tree stock remains up 17% year-to-date through Monday’s close, outperforming both Walmart (up about 13%) and the S&P 500, which has gained nearly 15%.

Still, analysts warn that sustained inflation and pricing pressures could erode those gains in the coming quarters.

Jefferies’ downgrade comes as Dollar Tree prepares for its upcoming Investor Day, where management is expected to outline its strategic priorities amid evolving consumer trends and cost challenges.

The firm’s note suggests that management’s pricing and operational decisions will be under heightened investor scrutiny as the company works to balance competitiveness with profitability.

The average rating on Dollar Tree stock among 28 analysts tracked by LSEG remains a Hold, with a median price target of $109, significantly above Jefferies’ revised target.

As the discount retail landscape grows increasingly competitive, Dollar Tree’s ability to simplify its pricing model, protect margins, and sustain customer loyalty will be key to maintaining its standing in a sector defined by tight consumer budgets and constant price comparison.

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