Dollar Tree recently announced its plans to potentially sell its grocery-focused Family Dollar brand. The company has been facing challenges in revamping the struggling business, which led to the closure of almost 1,000 Family Dollar stores. This decision was made in an effort to streamline the Family Dollar banner and focus on growth acceleration at Dollar Tree.
Dollar Tree acquired Family Dollar in 2015 for almost $9 billion, but the business has been struggling to compete against its major rival, Dollar General, ever since. The company has not set a deadline for the sale review process but is working with JPMorgan and Davis Polk & Wardwell advisors. Shares of Dollar Tree fell about 2% in premarket trading following the announcement.
In its first fiscal quarter, Dollar Tree reported a rise in revenue to $7.63 billion, up about 4% from a year earlier. However, same-store sales for the Dollar Tree brand rose 1.7%, while Family Dollar sales climbed only 0.1%. The company expects sales for the second quarter to range from $7.3 billion to $7.6 billion, with sales growth for the Dollar Tree brand between 2% and 4%.
The reported earnings per share for Dollar Tree were $1.43 cents, slightly higher than the expected $1.42 cents. However, the revenue matched expectations at $7.63 billion. The company’s net income for the quarter was $300.1 million, compared with $299 million a year earlier. Dollar Tree reported losses totaling $117 million after a tornado destroyed its distribution center, with the expectation of recovering the losses through insurance.
The dollar store segment is facing tough times as lower-end consumers cut back on spending due to higher costs. While cost-cutting efforts might seem beneficial for dollar stores, they are losing market share to value retailers like Walmart and e-commerce giants. Dollar Tree’s struggles were evident when it fell short of holiday-quarter sales expectations, while its competitor Dollar General exceeded estimates.
Dollar Tree has been undergoing a broader turnaround effort since Richard Dreiling took over as CEO in early 2023. Despite these efforts, the company’s shares have dropped approximately 15% in 2024. The challenges faced by Dollar Tree and Family Dollar reflect the changing landscape of retail and the need for innovative strategies to stay competitive in the market.