Deutsche Bank downgrades Dollar Tree to hold, warns inflation will hit discount retailer's margins
Rising costs for retailers will keep a lid on Dollar Tree's stock for the foreseeable future, according to Deutsche Bank. Analyst Krisztina Katai downgraded the stock to hold from buy, saying in a note to clients on Monday that sticking to the discount retailer's namesake price point could make for rough going with costs rising. "We remain long-term believers in DLTR's story including the ongoing turnaround at Family Dollar, however, we are incrementally concerned around accelerating cost pressures from both freight and wages, particularly in light of the Dollar Tree banner's fixed $1 price point which limits its ability to absorb higher costs through price increases, putting margins at risk," the note said. Throughout the summer, inflation readings have come in ahead of the 2% level that the Federal Reserve targets over the long term, while recent jobs reports have shown strong wage growth. That should be worrying news for a company whose margins were already under pressure when inflation was muted, Deutsche Bank said. "While management points to DLTR's 35-year history of operating at a $1 price point through multiple inflationary and deflationary periods, we highlight that Dollar Tree's operating margins have been under pressure for a number of years," the note said. The stock has fallen 15% over the last three months, in part due to concerns about inflation. Shares are down more than 8% for the year. Deutsche Bank slashed its price target on Dollar Tree to $102 per share from $129. The new target is just 3% above where shares closed on Friday. -CNBC's Michael Bloom contributed to this report.

Pedestrians walk past a Dollar Tree Inc. store in Detroit, Michigan, U.S. Sean Proctor | Bloomberg | Getty Images