Dollar Tree fell to an unexpected loss in the fourth quarter and will close nearly 1,000 stores as the discount retailer slashes the value of a rival chain it acquired nearly a decade ago.
Dollar Tree plans to close about 600 Family Dollar stores in the first half of this year, and about 370 Family Dollar stores and 30 Dollar Tree stores over the next few years.
Dollar Tree acquired Family Dollar for more than $8 billion in 2015 after a bidding war with rival Dollar General, but the chain was difficult to absorb.
Dollar Tree announced Wednesday that it will record a $950 million impairment charge on its Family Dollar trade name, in addition to a $1.07 billion goodwill charge. Family Dollar will spend more than $594 million closing stores and rebranding, effectively eliminating holiday profits.
“This dramatic shakeout is a major milestone in the rather unsuccessful acquisition of the Family Dollar Chain, which has caused nothing but inconvenience to Dollar Tree since the acquisition was completed in 2015.” Neil Saunders, Managing Director at GlobalData, writes: “Essentially, almost 10 years later, Dollar Tree is still sifting through the mess it inherited and hasn't been able to completely pivot,” Sanders said.
Nearly 12% of Family Dollar's current stores will close over the next three years, Sanders said in an emailed statement.
Dollar Tree stock fell more than 14% on Wednesday.
For the three months ended February 3, Dollar Tree lost $1.71 billion, or $7.85 per share. The Chesapeake, Virginia-based company had profit of $452.2 million, or $2.04 per share, in the same period last year.
Excluding certain items, earnings were $2.55 per share, still short of the $2.67 per share expected by Wall Street, according to Zacks Investment Research.
Revenue rose to $8.64 billion from $7.72 billion, slightly below Wall Street's estimate of $8.67 billion.
Dollar Tree attracts inflation-stricken consumers looking to cut spending. During the quarter, sales at Dollar Tree stores open at least a year increased 6.3% and foot traffic increased 7.1%. While more shoppers headed to stores, they were keeping a close eye on how much money they spent, and average ticket numbers fell by 0.7%.
At Family Dollar, sales at stores open at least a year fell 1.2%. Traffic increased by 0.7%, but the average number of tickets decreased by 2%.
For fiscal 2024, Dollar Tree expects earnings per share to be between $6.70 and $7.30. Revenue is expected to be in the range of $31 billion to $32 billion.
Analysts surveyed by FactSet expected full-year earnings of $7.04 on revenue of $31.68 billion.
Dollar Tree expects first-quarter earnings to be in the range of $1.33 to $1.48 per share and revenue in the range of $7.6 billion to $7.9 billion.
Wall Street expects first-quarter earnings of $1.70 a share on revenue of $7.68 billion.
