Despite Bleak 2023 Profit Guide, We Think Dollar Tree Prudently Boosting Long-Term Brand Investment

No-moat Dollar Tree announced a sweeping, pull-forward investment of $430 million in fiscal 2023 and materially boosted its near-term capital expenditure expectations (to $2 billion or 6.5% of sales, from the 4% average it has expended historically). Even though we view such spending as prudent, these efforts stand to strangle near-term profitability, overshadowing the firm’s otherwise solid fourth-quarter finish (a 7.4% comparable-store sales increase and 70 basis points of gross margin expansion to 30.9%).