Rogelio V. Solis/AP
Dollar Tree posted a surprising fourth-quarter loss and will close nearly 1,000 stores after the discount retailer slashed 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 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 has had trouble absorbing the chain.
On Wednesday, Dollar Tree said it would record a $950 million impairment charge for its Family Dollar brand name, in addition to a $1.07 billion goodwill charge. Family Dollar plans to spend more than $594 million closing or rebranding stores, essentially eliminating its holiday revenue.
“This dramatic downfall is the final blow to the Family Dollar chain’s somewhat abortive acquisition, which has caused Dollar Tree nothing but hassles since it was completed in 2015,” said Neil Saunders, managing director at GlobalData. “Basically, almost 10 years later, Dollar Tree is still sifting through the mess it inherited and can’t quite go back,” Saunders said.
Nearly 12% of current Family Dollar stores will close within the next three years, Saunders said in an emailed statement.
Dollar Tree shares fell more than 14% Wednesday.
In the three months ended Feb. 3, Dollar Tree lost $1.71 billion, or $7.85 per share. A year ago, the Chesapeake, Va.-based company earned $452.2 million, or $2.04 per share.
Excluding certain items, earnings per share were $2.55, still short of the $2.67 per share expected on Wall Street, according to research by Zacks Investment Research.
Sales rose from $7.72 billion to $8.64 billion, slightly below Wall Street estimates of $8.67 billion.
Dollar Tree is attracting inflation-stricken consumers looking to spend less. During the quarter, sales at Dollar Tree stores open at least a year increased 6.3% and traffic increased 7.1%. As more shoppers head to stores, they closely watch how much they spend, resulting in a 0.7% decrease in average tickets.
At Family Dollar, sales at stores open at least a year fell 1.2%. Traffic increased 0.7%, but average tickets decreased 2%.
Dollar Tree expects earnings in the range of $6.70 to $7.30 per share for fiscal 2024. Sales are expected to be between $31 billion and $32 billion.
Analysts surveyed by FactSet expect full-year earnings of $7.04 and revenue of $31.68 billion.
Dollar Tree expects first-quarter sales to range from $7.6 billion to $7.9 billion and earnings of $1.33 to $1.48 per share.
Wall Street expects first quarter net profit of $1.70 and sales of $7.68 billion.