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Key Takeaways
- Dollar Tree on Wednesday reported quarterly earnings and announced plans to explore the sale or spinoff of Family Dollar.
- First-quarter earnings for the retailer missed estimates, and the company said it’s progressing in its plan announced in March to close hundreds of Family Dollar stores this year.
- Family Dollar could also soon have a new home or return to operating as a standalone company, as Dollar Tree has started a “strategic review” of the brand.
Discount retailer Dollar Tree ( DLTR ) announced Wednesday it will explore selling or spinning off its Family Dollar brand, and released first-quarter earnings that missed expectations.
The earnings report is the first since Dollar Tree announced plans in March to close roughly 1,000 stores , mostly Family Dollar locations, indicating that its efforts to turn around the unit was not working as well as it had hoped.
Q1 Results, Q2 Guidance Miss Estimates
Net sales rose 4.2% from the first quarter of fiscal 2023 to $7.63 billion, in line with expectations, but net income of $300.1 million, or $1.38 per share, fell short of the $310.9 million and $1.43 per share analysts had projected, according to estimates compiled by Visible Alpha.
In March, Dollar Tree said it planned to close 600 Family Dollar locations in the first half of fiscal 2024, along with 370 additional Family Dollar and 30 Dollar Tree stores “over the next several years.” By the end of the first quarter, the company said it has closed 550 stores and plans to close 150 more by the end of the fiscal year.
For the current quarter, Dollar Tree projects net sales of $7.3 billion to $7.6 billion, compared to the $7.58 billion analysts currently estimate, while adjusted earnings per share (EPS ) are expected between $1.00 and $1.10, worse than the $1.16 mark analysts expect.
Dollar Tree’s business has also been impacted by the loss of a distribution center in Marietta, Okla., which was destroyed in a tornado in late April. The company said it incurred losses of $117 million with the inventory and equipment lost in the disaster.
Potential Family Dollar Sale, Spinoff
The company also announced Wednesday that it “has initiated a formal review of strategic alternatives” for the Family Dollar brand, including a possible sale or spinoff of the unit nearly a decade after acquiring it.
Dollar Tree first announced its deal to acquire the Family Dollar brand in July 2014, with the deal closing roughly a year later.
“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 Chief Executive Officer (CEO ) Rick Dreiling said.
“Our goal is to position both the Dollar Tree and Family Dollar banners to progress further and faster, and to determine whether the exclusive attention of a dedicated team will benefit both, while creating value for Dollar Tree shareholders and other stakeholders.”
Dollar Tree has not yet set an official timetable or deadline for the review, and said it will only provide further updates if a decision has been made.
Dollar Tree shares rose briefly following the announcement, but reversed course and were 2.7% lower at $117.00 by 8:20 a.m. ET Wednesday, putting them down more than 17% so far this year.