Dollar Tree (DLTR) announced on Tuesday that its current Executive Chairman, Rick Dreiling, will expand his duties taking over the CEO role from departing chief executive Mike Witynski.
This may or may not be a catalyst for Dollar Tree shares. However, before you run out and buy DLTR stock, consider what this changing of the guard means.
By the end, you’ll better understand whether Dollar Tree is a buy.
The Circumstances Around Witynski Leaving
Witynski joined Dollar Tree after 29 years in the grocery industry. Before being hired by Dollar Tree as Senior Vice President of Retail Store in 2010, his most recent position was as President of Shaw’s Supermarkets, a New England regional grocery store chain with $4.1 billion in revenue.
From 2010, Witynski rose up the ranks at Dollar Tree until his July 2020 appointment as CEO. He departs with 12 years under his belt, including the last 31 months in the top job.
According to Dollar Tree’s proxy, Witynski is 59, and Dreiling is 68. So, one of two things is going on here. Either Witynski wants to take a break from the grind, or the board’s not happy with his performance.
Dollar Tree stock is up 57% since Witynski became CEO, more than double the return of the S&P 500 over the same period, so it’s likely the former rather than the latter.
68 Isn’t Very Old These Days
Warren Buffett is 92 years old and still goes to the office daily. From this perspective, Dreiling could serve as CEO for five or 10 years if the desire was there and the board was willing. I don’t believe Dollar Tree has a mandatory CEO retirement age.
It’s important to remember that Dreiling was part of the slate of directors proposed by New York-based activist investor Mantle Ridge back in December 2021. Mantle Ridge initially took a stake in the discount chain that November, pushing for Dollar Tree to improve its Family Dollar operation, which it paid close to $9 billion for in 2015. But, unfortunately, it never really gelled with the rest of the business.
Mantle Ridge founder Paul Hilal wanted Dreiling to serve in an executive capacity with Dollar Tree. Dreiling was Dollar General (DG) CEO for 7.5 years between January 2008 and June 2015, when he stepped down, replaced by Dollar General Chief Operating Officer Todd Vasos as the new boss.
Dreiling took Dollar General public in November 2009 at $21 a share. Its shares gained 329% while Dreiling was CEO. That compares to 274% for the S&P 500. That's a decent performance.
However, the investors who did well were KKR & Co. (KKR) and Goldman Sachs (GS). First, they bought Dollar General for an enterprise value of $7.3 billion in 2007. Then, they turned around and did an IPO two years later, generating hundreds of millions in quick profits on the buyout.
Dollar General’s former private equity owners likely had a big say in Dreiling’s hiring in early 2008. Likewise, Mantle Ridge had a voice in his ascension to the CEO job.
Jefferies Likes the Move
Jefferies analyst Corey Tarlowe approves of the change at the top.
“‘We view this move as a positive for [Dollar Tree],’ wrote Tarlowe in a note released Tuesday, noting that Dreiling has a track record of retail turnarounds, including at Dollar General Corp.,” MarketWatch reported Tuesday.
“‘From 2008 to 2015, Mr. Dreiling served as the CEO and Chairman of Dollar General,’ Tarlowe wrote. ‘Prior to the [Dollar General] turnaround, he led Duane Reade in various roles including CEO, President, and Chairman.’”
The 17 analysts that cover Dollar Tree, according to Barchart.com, give it a Moderate Buy rating (4.0 out of 5) and a target price of $164.77, 11% higher than where it’s currently trading. For Dollar General, 18 analysts cover DG, giving it a Moderate Buy (4.22 out of 5) and a target price of $264.10, which is also 11% higher than its current share price.
So, despite the Jefferies comments, it’s a toss-up between the two companies in the minds of analysts.
From where I sit, Dreiling has a history of working with private equity and activist investors. So he may view this as his last chance to take a mediocre business and turn it into something special.
Having been at Dollar General for as long as he was, his understanding of discount pricing strategies is top-notch. That’s why Mantle Ridge pushed for his role in the company’s executive management in the first place. Now that he’s entirely in charge, shareholders can expect changes to happen here in 2023.
Is DLTR a buy because of this move? I think it is.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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