Dollar Tree exploring sale of Family Dollar
Family Dollar may soon find itself on the selling block.
Dollar Tree, which acquired Family Dollar in 2015 for about $8.5 billion after a year-long takeover saga, said it is reviewing strategic alternatives for its Family Dollar business segment, which could include a potential sale or spin-off of the business.
Dollar Tree has faced challenges in integrating Family Dollar, which has struggled under increased competition from the likes of Walmart and Dollar General, into its business. In March, the extreme discounter said it planned to close 600 Family Dollar stores in the first half of 2024, with another 350 locations slated to close over the next several years as each store's current lease term expires. (At of the end of April, the company had closed approximately 550 Family Dollar stores with plans to close an additional 150 stores by the end of fiscal 2024.)
“We are already beginning to see progress in this targeted strategy in the streamlined Family Dollar banner,” stated Family Dollar chairman and CEO Rick Dreiling.
Dreiling noted that the company has been closing Family Dollar stores as it continues to "aggressively" grow the Dollar Tree banner across the United States. Most recently, Dollar Tree acquired 170 leases for 99 Cents Only Stores locations across Arizona, California, Nevada and Texas, along with the intellectual property of the bankrupt retailer. It plans to convert the acquired stores to the Dollar Tree banner.
“The unique needs of each banner at this time — transformation at Family Dollar and growth acceleration at Dollar Tree — lead us to the decision to conduct a thorough review of strategic alternatives for the Family Dollar business,” Dreiling said. “Our goal is to position both the Dollar Tree and Family Dollar banners to progress further and faster, and to determine whether the exclusive attention of a dedicated team will benefit both, while creating value for Dollar Tree shareholders and other stakeholders.”
First-quarter earnings
Dollar Tree revealed the news about the review the same day it reported its fiscal first-quarter earnings. The discounter posted net income of $300.1 million, or $1.38 cents per share, for the quarter ended May 4, compared with $299 million, or $1.35 per share, in the year-ago period. Adjusted earnings totaled $1.43 per share, in line with estimates.
Revenue rose about 4% to $7.633 billion. Analysts had expected revenue of $7.634 billion.
Total same-store sales rose 1%. Same-store sales increased 1.7% at Dollar Tree and 0.1% at Family Dollar.
“We are pleased to deliver first quarter adjusted EPS results that are towards the high end of our outlook range,” stated Dreiling. “At Dollar Tree we remain focused on rapidly rolling out our next generation of multi-price stores and at Family Dollar we are taking the steps necessary to position the business for long-term success.”
Tornado damage
On April 28, a tornado destroyed the company’s distribution center in Marietta, Okla. Based on the significant damage sustained by the facility, the inventory contained in the facility and the facility itself are not salvageable. The company incurred losses totaling $117.0 million, consisting of $70.0 million related to damaged inventory and $47.0 million related to property and equipment.
“Our distribution center insurance policies include significant property and inventory coverage, and we believe the aforementioned incurred losses will be fully offset by insurance recoveries,” Dollar Tree said.
Dollar Tree said it has not set a deadline or definitive timetable for the completion of the strategic alternatives review process, and there can be no assurance that this process will result in any transaction or particular outcome.
The retailer has retained J.P. Morgan Securities LLC as its financial advisor and Davis Polk & Wardwell LLP as its legal advisor to assist in the review.
As of May 4, Dollar Tree operated 16,397 stores across 48 states and five Canadian provinces as of May 4, 2024 under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada.