Dollar Tree jumps after the discount chain says $1.25 will be its new price point

Dollar Tree store.

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• Dollar Tree stock rose after the deep-discount chain announced its new price point will be $1.25.
• The move marks a departure from the everything-for-$1 philosophy Dollar Tree has employed for the past three decades.
• The retailer maintained it's "not a reaction to short-term or transitory market conditions."

Dollar Tree stock rose Tuesday after the discount chain announced that its new price point will be $1.25, departing from the everything-for-$1 philosophy the retailer has employed for the past three decades.

Price hikes were first announced in September, with management noting prices of $3 and $5 as well as $1.25 and $1.50.

On Tuesday, Dollar Tree further detailed its strategy, saying prices on the majority of its products will climb to $1.25 from $1 by the first quarter of next year. "This decision is permanent."  

Dollar Tree stock spiked 6% to $140.90 at 11:25 a.m. to its highest since it was listed in 1995. Before the open, the company also reported third-quarter earnings that beat estimates.

During its earnings call with analysts Tuesday, the company maintained this move was "not a reaction to short-term or transitory market conditions."

Instead, the bump in the base price is to "shift away from the constraints of the $1 price point in order to continue offering extreme value to customers," the company said. Additionally, this increase will enable the company to return profit margins to their longstanding levels of 35% to 36% next year. 

But in August, CEO Michael Witynski acknowledged concerns about inflation and the rising cost of goods, shipping, and labor.

The retailer said Tuesday it was encouraged by the positive customer feedback and store performance during the initial testing phase of the new price point.  

Around 77% of shoppers indicated they were almost immediately aware of the increased price when visiting the store, while 91% said they would continue to shop at Dollar Tree with the same frequency, the company said. 

"Lifting the one-dollar constraint represents a monumental step for our organization," Witynski said in a statement.