Dollar Tree considers potential sale of its Family Dollar chain amid dismal sales
Dollar Tree said Wednesday that it is considering "a potential sale, spin off or other disposition" of its Family Dollar chain of stores.
The announcement came just hours before the Virginia-based discount store reported earnings for its first quarter ended May 4. Revenue grew to $7.6 billion, up about 4% from $7.3 billion a year ago. Dollar Tree's profit was basically flat at $300.1 million for the quarter compared with $299 million last year.
Dollar stores have increasingly become part of Americans' shopping habits as consumers try to pare down spending under inflationary pressures. The discount stores are now the fastest growing food retailers in the nation, in part because they've expanded their reach into rural areas of the U.S., according to January 2023 research from the American Journal of Public Health.
Although the majority of Americans in lower income brackets appreciate companies like Dollar Tree, Dollar General and Family Dollar in their neighborhoods, according to an October survey from the Center for Science in the Public Interest, they'd like them to offer healthier food options at their stores.
Dollar Tree acquired Family Dollar for more than $8 billion in 2015 after a bidding war with rival Dollar General, but it has had difficulty absorbing the chain.
"After almost 10 years of trying to make the Family Dollar acquisition work, Dollar Tree has seemingly thrown in the towel," Neil Saunders, managing director of GlobalData, said in an email. "The Family Dollar business just isn't delivering the growth and profit needed, and the amount of work required to bring it up to scratch is considerable. Dollar Tree has figured that it is better off selling or spinning off the Family Dollar business so that it can concentrate on its core operation which is performing much better."
Dollar Tree has 16,397 stores across 48 states and parts of Canada, of which 7,300 are Family Dollar. The Virginia-based company said there's no set date for when the company will make a decision on Family Dollar and there's "no assurance that this process will result in any transaction or particular outcome."
Dollar Tree said in March it plans to close nearly 1,000 stores over the next several years — including roughly 600 Family Dollar stores during the first half of fiscal 2024, as well as another 370 Family Dollar locations and 30 Dollar Tree stores as their leases expire.
"The saga of Family Dollar is a long and unhappy one," Saunders said in a research note Wednesday. "For almost 10 years, Dollar Tree has battled to improve a company that it originally fought so hard to buy, investing an extensive amount of capital and energy. There have been pockets and periods of success but, overall, the trajectory has been entirely unsatisfactory. So, on balance, the decision to cut and run is the right one."
Despite possibly shedding the Family Dollar stores, Dollar General CEO Rick Dreiling said in a statement Wednesday that the company is continuing to "aggressively grow the Dollar Tree banner." He pointed to Dollar Tree's recent acquisition of leasing rights to 170 shuttered 99 Cents Only Stores in Arizona, California, Nevada and Texas, which it plans to reopen this fall.
Dollar Tree's stock price fell about 4.8% Wednesday morning, to roughly $114.50 a share.