Dollar Tree to Close, Rebrand Nearly 600 Family Dollar Stores--Update
07 March 2019 - 2:02AM
Dow Jones News
By Sarah Nassauer and Micah Maidenberg
Dollar Tree Inc. sharply marked down the value of its Family
Dollar chain and announced plans to close hundreds of Family Dollar
stores this year as the discount retailer struggles to increase
sales at the chain it acquired over three years ago.
The company said Wednesday it booked a $2.73 billion charge in
its fiscal fourth quarter to lower the value of Family Dollar,
which it purchased in 2015 for nearly $9 billion in cash and
stock.
The merger, after a bidding war, was supposed to revive Family
Dollar and create a chain with more than 15,000 stores across the
country to better compete with rival Dollar General Corp. and
Walmart Inc. Instead, sales at Family Dollar have lagged behind
competitors, dragging down performance at Dollar Tree. In January,
activist investor Starboard Value LP revealed a stake in Dollar
Tree and asked management to consider selling Family Dollar, even
at a loss.
Dollar Tree said Wednesday it plans to close up to 390 Family
Dollar stores this year and convert about 200 more to Dollar Tree
stores. Executives previously said Dollar Tree would renovate at
least 1,000 Family Dollar stores this year. The company had 8,200
Family Dollar stores and 7,000 Dollar Tree stores at the end of the
latest quarter.
Same-store sales rose 3.2% at the Dollar Tree brand, while sales
at stores open at least a year under the Family Dollar banner
increased 1.4%, the highest increase since 2017 but still a drag on
Dollar Tree's overall sales.
Shares of Dollar Tree rose more than 6% in premarket trading
Wednesday.
Starboard Value is pushing the retailer to sell Family Dollar
and offer a broader range of products at different price points
under the Dollar Tree banner. Starboard also has nominated seven
new board members, including Bill Simon, former chief executive of
U.S. stores for Walmart Inc., and Kathleen Guion, former president
at Dollar General.
Dollar Tree said Wednesday that Carrie Wheeler, a former
executive at private-equity investor TPG Global, has been appointed
to serve as an independent director on the company's board.
Starboard has asked Dollar Tree to consider joining its
competitors in selling some items at price points above $1, such as
$1.50 or $2, to boost profits. Dollar Tree, whose products
currently all sell for $1, on Wednesday showed some openness to
Starboard's proposal to raise prices above $1, saying in a news
release it would test doing so for certain products. "While the
Company will not undermine this important value proposition for
customers, testing new initiatives is an essential component of the
Company's ability to evolve," said the company in the release.
Dollar Tree reported $6.21 billion in consolidated net sales for
the quarter ended Feb. 2, down about 2% from the comparable period.
Weakness in the Family Dollar chain, where sales slipped about 5%,
hurt overall results.
The three large dollar chains target slightly different
customers. Dollar Tree stores are mostly in suburban locations and
sell all items for $1. Dollar General has more rural locations and
aims to attract low-income shoppers by selling frequently purchased
products at different price points. Family Dollar aims to attract
similar low-income shoppers, but nearly half of its stores are in
urban locations. Including Family Dollar outlets, Dollar Tree has
about 15,000 U.S. stores, roughly equal with Dollar General.
Dollar Tree executives have said their plan to improve sales at
Family Dollar is in motion. The retailer aimed to finish around 500
Family Dollar renovations during this past fiscal year, at least
1,000 this current year, and another 1,000 next year, Chief
Executive Gary Philbin said in an interview last November.
Because of the goodwill impairment charge, Family Dollar
reported a net loss of $2.31 billion, or $9.66 a share, compared
with a profit $1.04 billion, or $4.37 a share, in the year-earlier
period, when its earnings were helped by a nonrecurring tax
benefit.
The company reported an adjusted profit, excluding the
impairment charge, of $1.93 a share for the fourth quarter.
Write to Sarah Nassauer at sarah.nassauer@wsj.com and Micah
Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
March 06, 2019 09:47 ET (14:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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