Dollar Tree will sell products for more than a dollar 0:40
(CNN) --
When Dollar Tree announced it would raise its prices to $1.25 after 35 years of keeping them at $1, some of its customers protested and industry analysts questioned the decision.
But a year later, the controversial move appears to be paying off.
The price increase added to Dollar Tree's sales.
The change has also allowed the company to introduce merchandise it was previously unable to sell due to the $1 price restriction, helping it attract new buyers.
Other competing companies have raised prices as well, so Dollar Tree hasn't suffered from customer abandonment.
Sales at Dollar Tree stores rose 8.6% last quarter compared with a year earlier, the company, which also owns Family Dollar, said Tuesday.
Family Dollar sales grew 4.1% last quarter.
Dollar Tree will stop selling everything for a dollar and increase the price to $1.25
“The transition to the $1.25 price point has allowed our dealers to greatly enhance value,” Dollar Tree CEO Michael Witynski said on a call with analysts Tuesday.
Dollar Tree owns more than 8,000 stores.
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Dollar Tree reported a year ago that it was raising prices to offset higher costs and improve the quality of its merchandise, which comes in small-pack sizes.
The company's product selection had suffered from having to keep everything under $1, and its sales were not good.
At the time, Dollar Tree had been forced to discontinue several "customer favorites," the company previously said, because it couldn't keep them under $1, particularly packaged and frozen foods and household essentials.
"Our consumer product sales continued to decline quarter over quarter because we simply couldn't offer the customer the availability and variety they were looking for at that $1 price," Witynski said Tuesday.
Dollar Tree has since brought back some of these items to $1.25 and expanded its offerings to meat, pizza, breakfast and other consumer items.
These additions caused a new increase in sales.
“We like the business and the reaction we are seeing from customers that we can have a better variety,” he said.
Dollar Tree is also adding more $3 and $5 items to the stores, building on a previous strategy.
Still, Wall Street remains cautious about the company's long-term prospects.
Dollar Tree shares fell 8% on Tuesday as it lowered its earnings expectations for the year.
Customers have been pressured by inflation and are replacing discretionary items with necessities, which are less profitable for Dollar Tree.
Retail stores increased their sales 1.3% despite inflation in the US.
“The economy continues to put pressure on low- and middle-income household customers, resulting in more needs-based purchases,” said Dollar Tree chief financial officer Jeffrey Davis.
The company said it is looking to attract more higher-income customers than its typical demographic, which is shopping for necessities in stores to stretch their budgets.
Walmart, Dollar General (DG) and other discount chains have also said in recent months that they are winning new and wealthier customers due to inflation.
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