While not a total failure, Dollar Tree’s 2015 purchase of Family Dollar stores has proven a disappointment. That fact was affirmed earlier this month when the Chesapeake, VA- based dollar store merchant (second to Dollar General in that channel of trade) announced plans to shutter 390 of its Family Dollar Stores and rebrand 200 others to its core Dollar Tree brand. The chain revealed those plans March 6 as part of its fourth quarter and fiscal year financial reports for the period ended February 2, 2019.
Dollar Tree purchased Mathews, NC based Family Dollar in 2015 for nearly $9 billion as an effort to become more competitive against discount rivals like Dollar General and Walmart. However, sales at Family Dollar lagged and served to negatively impact performance at Dollar Tree.
In January, activist investor Starboard Value LP acquired a 1.7 percent a stake in Dollar Tree for approximately $370 million and nominated its own seven-member board to replace existing Dollar Tree directors. It also recommended that management sell Family Dollar, even if it had to take a loss. Dollar Tree has rejected those recommendations.
Instead, Dollar Tree has said it will renovate at least 1,000 Family Dollar Stores this year and will pursue an accelerated renovation schedule in future years. It has rolled out a new model for both new and renovated Family Dollar stores internally known as H2. The company said the new H2 model has significantly improved merchandise offerings, including Dollar Tree $1.00 merchandise, throughout the store. It added that H2 has produced increased traffic and provided an average comparable store sales lift in excess of 10 percent over control stores. H2 performs well in a variety of locations, and especially in locations where Family Dollar has in the past been the most challenged. Additionally, the company plans to install adult beverages in approximately 1,000 stores and expand freezers and coolers in approximately 400 stores. The company reported it also plans to open 350 new Dollar Tree and 200 new Family Dollar stores in fiscal 2019. The chain operated about 8,200 Family Dollar stores and 7,000 Dollar Tree stores at the end of fourth quarter.
The company reported a quarterly loss of $2.31 billion, or $9.66 a share, compared with a profit of $1.04 billion or $4.37 a share a year earlier on a $2.73 billion goodwill impairment charge related to the Family Dollar business.
Adjusted earnings for the quarter were $9.38 per share, up from $1.89 a year ago. Sales for the quarter were $6.21 billion versus $6.36 billion in the prior year’s fourth quarter. Overall, same store sales grew 2.4 percent during the fourth quarter – at Family Dollar they rose 1.4 percent and at Dollar Tree they increased 3.2 percent.
Full year sales grew 2.6 percent to $22.82 billion versus $22.25 billion in the prior year. Dollar Tree’s same store sales for the year were up 3.3 percent while Family Dollar’s grew by just 0.1 percent.
“Sales for the quarter were strong,” stated Gary Philbin, president and chief executive officer. “Our results demonstrate the increasing strength of the Dollar Tree brand, and accelerated progress on the Family Dollar turnaround, as Family Dollar delivered its strongest quarterly same-store sales growth of the year.”
Philbin continued, “We are confident in our progress and we have good momentum. Our merchants at both banners have delivered a 2019 plan that we believe overcomes most of the effect of tariffs at the 25 percent level and provides opportunity for margin improvements if tariffs are not increased. We moved aggressively in the fourth quarter to optimize Family Dollar’s performance, including closing 84 stores and announcing plans to renovate at least 1,000 stores in 2019.”