Activist investor seeks big changes at Dollar Tree

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Activist investor seeks big changes at Dollar Tree

By Marianne Wilson - 01/07/2019
An activist investor wants Dollar Tree to explore ways to “unlock value,” including selling its Family Dollar business.

Starboard Value LP, which has acquired a 1.5% stake in the discounter, also wants Dollar Tree to adjust its everything-for-$1.00 pricing model to a “multi-price point” strategy.

“Dollar Tree has kept its prices at $1.00 since its founding thirty years ago, despite the fact that $1.00 in 1986 is worth approximately $2.30 today, due to inflation,” Jeff Smith, Starboard CEO, wrote in a letter to Dollar Tree’s board. “However, the value that Dollar Tree has offered its customers has deteriorated because of the need to fit everything into a $1.00 price point. By introducing a few additional low price points, while keeping the majority of products priced at $1.00, we believe that Dollar Tree could dramatically improve its product assortment and offer far more value to its customers, ultimately driving increased customer loyalty.”

In the letter, Smith said that Starboard wants Doller Tree to explore all strategic alternatives for its “underperforming” Family Dollar business, including an outright sale. According to Starboard, Dollar Tree “significantly overpaid for Family Dollar, and this business is proving to be a meaningful distraction.”

“Since closing the acquisition of Family Dollar on July 6, 2015, Dollar Tree has underperformed Dollar General by more than 20%,” Smith wrote. “Over this same time period, the broader market has appreciated by more than 30%, significantly more than Dollar Tree, which is up only 16%.”

Starboard also is seeking majority control of the Dollar Tree’s 12-person board. It plans to nominate seven directors for the company's board at Dollar Tree's next shareholder meeting.

Dollar Tree responded to Smith's letter with a statement in which it said appreciated the Starboard investment and the suggestions. It also noted that its board has added four new independent directors since May 2016.

“While we appreciate Starboard's investment and will evaluate any suggestions they may have as we would with any investor, we note that Starboard's nominations for a majority of the board were made without seeking any engagement or making any communication to the company," Dollar Tree stated. "We look forward to the opportunity to engage with Starboard regarding any suggestions they may have, and we will continue to stay close to our shareholders on matters of importance to them and keep taking actions to drive shareholder value."

In its most recently completed quarter, Dollar Tree’s profit margins were hurt by markdowns and higher shipping and distribution costs. It also forecast earnings and sales forecasts for the current quarter that missed analysts’ estimates. The company has been working to turn around its slumping Family Dollar business.

Dollar Tree operates more than 15,100 stores across 48 states and five Canadian provinces. Stores operate under the brands of Dollar Tree, Family Dollar and Dollar Tree Canada.

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