Dollar Tree announced on Wednesday that it is considering selling its more grocery-focused Family Dollar brand. This comes after the company revealed plans to close almost 1,000 Family Dollar stores in an effort to revamp the struggling business. During its fiscal first quarter, the discounter closed more than 500 locations.
“We are already beginning to see progress in this targeted strategy in the streamlined Family Dollar banner,” the company stated in a press release. “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.”
Dollar Tree acquired Family Dollar in 2015 for nearly $9 billion. However, the business has faced challenges competing with its major rival, Dollar General. The company has not set a specific deadline or timetable for the sale review process and is working with JPMorgan and Davis Polk & Wardwell advisors in its review.
Shares of Dollar Tree fell approximately 5% following the announcement.
The update was released alongside Dollar Tree’s fiscal first-quarter earnings report, which highlighted Family Dollar’s lagging performance. Same-store sales for the Dollar Tree brand rose 1.7%, while Family Dollar sales increased only 0.1%. Overall, enterprise sales rose by 1%.
Revenue for the quarter climbed to $7.63 billion, up about 4% from $7.32 billion a year earlier. The company expects second-quarter sales to range from $7.3 billion to $7.6 billion, with Dollar Tree banner sales growing between 2% and 4% and Family Dollar sales remaining approximately flat.
For the fiscal first quarter, Dollar Tree reported earnings per share of $1.43, slightly above the $1.42 expected by analysts. Revenue matched expectations at $7.63 billion. Net income for the three-month period ending May 4 was $300.1 million, or $1.38 per share, compared to $299 million, or $1.35 per share, a year earlier. Adjusting for one-time items, including store closure costs, the company reported earnings of $1.43 per share.
Additionally, the company reported losses totaling $117 million after a tornado destroyed its distribution center in Marietta, Oklahoma, on April 28. The facility and its inventory were deemed non-salvageable. Dollar Tree expects these losses to be offset by insurance recoveries.
The dollar store segment is facing tough times as lower-end consumers cut back on spending due to higher costs. Despite efforts to cut costs, dollar stores are increasingly losing market share to value retailers like Walmart and e-commerce platforms like Temu.
Dollar Tree missed expectations for holiday-quarter sales in its fourth-quarter earnings report, while its main competitor Dollar General surpassed estimates. The company has been undergoing a broader turnaround effort since CEO Richard Dreiling, former CEO of Dollar General, took the helm in early 2023. Shares of Dollar Tree have fallen roughly 15% in 2024.
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