Dollar Tree announced Wednesday it is considering a sale of its more grocery-focused Family Dollar brand.
The company had recently shared plans to close almost 1,000 Family Dollar stores in an attempt to revamp the struggling business. The discounter closed more than 500 locations during its fiscal first quarter, it said Wednesday.
“We are already beginning to see progress in this targeted strategy in the streamlined Family Dollar banner,” the company said 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 bought Family Dollar in 2015 for almost $9 billion. The business has been struggling ever since to compete against its major rival, Dollar General.
The company has not set a deadline or definitive timetable for the sale review process, and is working with JPMorgan and Davis Polk & Wardwell advisors in its review.
Shares of Dollar Tree fell about 2% in premarket trading Wednesday.
The update came alongside Dollar Tree’s fiscal first-quarter earnings report, in which Family Dollar lagged.
Same-store sales for the company’s Dollar Tree brand rose 1.7% while Family Dollar sales climbed only 0.1%. Enterprise sales rose 1%.
Revenue rose to $7.63 billion, up about 4% from $7.32 billion a year earlier.
The company said it expects sales for the second quarter will range from $7.3 billion to $7.6 billion, with sales growth for the Dollar Tree banner of between 2% and 4% and sales for the Family Dollar segment approximately flat.
Here’s how the discounter did in its first fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: $1.43 cents vs. $1.42 expected
- Revenue: $7.63 billion vs. $7.63 billion expected
The company’s reported net income for the three-month period that ended May 4 was $300.1 million, or $1.38 cents per share, compared with $299 million, or $1.35 per share, a year earlier. Adjusting for one-time items, including the cost of store closures, the company reported earnings of $1.43 per share.
The company also mentioned that it incurred losses totaling $117 million as of early May, after a tornado destroyed the company’s distribution center in Marietta, Oklahoma on April 28. The facility sustained significant damage, and the inventory in the facility as well as the facility itself are not salvageable, Dollar Tree said in the report.
The company said it expects the incurred losses to be offset by insurance recoveries.
The dollar store segment is going through tough times as lower-end consumers pull back in the face of higher costs. Although a shift to cost-cutting efforts sounds like it would have benefitted dollar stores, the discounters are increasingly losing market share to value retailers like Walmart and e-commerce retailers like Temu.
Dollar Tree fell short of expectations for holiday-quarter sales in its fourth quarter earnings report, meanwhile its main competitor Dollar General surpassed estimates.
Dollar Tree has been in the midst of a broader turnaround effort since current CEO and former Dollar General CEO Richard Dreiling took the helm in early 2023.
Shares of the company have pulled back roughly 15% in 2024.
