US Markets
Wednesday, June 5th, 2024 4:37 pm EDT
Key Points
- Considering Sale of Family Dollar: Dollar Tree announced it is considering selling its grocery-focused Family Dollar brand due to ongoing struggles and increased competition. The decision follows plans to close nearly 1,000 Family Dollar stores to revamp the business, with over 500 closures already completed in the fiscal first quarter.
- Financial Performance and Strategic Review: Family Dollar has been underperforming, with same-store sales rising only 0.1% compared to Dollar Tree’s 1.7% increase. Dollar Tree’s revenue for the first quarter was $7.63 billion, with earnings per share of $1.43, both in line with expectations. The company is working with JPMorgan and Davis Polk & Wardwell on the sale review process, with no set timetable.
- Operational Challenges and Market Conditions: The company reported $117 million in losses due to a tornado that destroyed a distribution center in Oklahoma. The dollar store segment is facing challenges as lower-income consumers cut back spending, and discounters are losing market share to value retailers like Walmart and e-commerce platforms like Temu. Dollar Tree’s shares have declined roughly 15% in 2024 amid these challenges.
Dollar Tree announced on Wednesday its consideration of selling its more grocery-focused Family Dollar brand, amid ongoing efforts to revamp the struggling business. The company plans to close nearly 1,000 Family Dollar stores, having already shut down over 500 locations in the fiscal first quarter. This strategic move is part of an initiative to streamline and transform the Family Dollar brand while accelerating growth for Dollar Tree. The decision reflects the differing needs of each brand at this time.
Dollar Tree acquired Family Dollar in 2015 for almost $9 billion. Despite the acquisition, Family Dollar has faced ongoing challenges, particularly in competing with its primary rival, Dollar General. The company has not set a specific deadline or timetable for the review of the sale process and is consulting with advisors from JPMorgan and Davis Polk & Wardwell.
On the day of the announcement, Dollar Tree’s shares dropped by approximately 2% during morning trading. The update coincided with the release of Dollar Tree’s fiscal first-quarter earnings report, which highlighted the underperformance of Family Dollar. Same-store sales for Dollar Tree increased by 1.7%, whereas Family Dollar’s sales saw a marginal rise of only 0.1%. Overall, enterprise sales grew by 1%, with revenue reaching $7.63 billion, up about 4% from $7.32 billion the previous year.
For the upcoming second quarter, Dollar Tree projects sales to range from $7.3 billion to $7.6 billion. It anticipates sales growth for the Dollar Tree banner between 2% and 4%, with Family Dollar’s sales expected to remain approximately flat. In the fiscal first quarter, the company reported earnings per share of $1.43, slightly above the expected $1.42. Revenue matched expectations at $7.63 billion. Net income for the quarter ending May 4 was $300.1 million, or $1.38 per share, compared to $299 million, or $1.35 per share, a year earlier. After adjusting for one-time items, including the cost of store closures, earnings were $1.43 per share.
The company also reported incurring losses totaling $117 million due to a tornado that destroyed its distribution center in Marietta, Oklahoma, on April 28. The facility and its inventory were deemed unsalvageable, but Dollar Tree expects insurance recoveries to offset these losses.
The dollar store segment, including Dollar Tree, faces challenges as lower-income consumers reduce spending in response to higher costs. Despite expectations that cost-cutting measures would benefit dollar stores, they are losing market share to value retailers like Walmart and e-commerce platforms like Temu. Dollar Tree fell short of holiday-quarter sales expectations in its fourth-quarter earnings report, while Dollar General exceeded estimates.
Dollar Tree has been undergoing a broader turnaround effort since early 2023 under the leadership of CEO Richard Dreiling, a former Dollar General CEO. Nevertheless, the company’s shares have declined roughly 15% in 2024, reflecting the ongoing struggles and strategic adjustments within the dollar store market.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/05/dollar-tree-earnings-family-dollar-sale-process.html
