DLTR Dollar Tree Inc

By Sarah Nassauer and Micah Maidenberg 

Dollar Tree Inc. sharply marked down the value of its Family Dollar chain and announced plans to close hundreds of Family Dollar stores this year as the discount retailer struggles to increase sales at the chain it acquired over three years ago.

The company said Wednesday it booked a $2.73 billion charge in its fiscal fourth quarter to lower the value of Family Dollar, which it purchased in 2015 for nearly $9 billion in cash and stock.

The merger, after a bidding war, was supposed to revive Family Dollar and create a chain with more than 15,000 stores across the country to better compete with rival Dollar General Corp. and Walmart Inc. Instead, sales at Family Dollar have lagged behind competitors, dragging down performance at Dollar Tree. In January, activist investor Starboard Value LP revealed a stake in Dollar Tree and asked management to consider selling Family Dollar, even at a loss.

Dollar Tree said Wednesday it plans to close up to 390 Family Dollar stores this year and convert about 200 more to Dollar Tree stores. Executives previously said Dollar Tree would renovate at least 1,000 Family Dollar stores this year. The company had 8,200 Family Dollar stores and 7,000 Dollar Tree stores at the end of the latest quarter.

Same-store sales rose 3.2% at the Dollar Tree brand, while sales at stores open at least a year under the Family Dollar banner increased 1.4%, the highest increase since 2017 but still a drag on Dollar Tree's overall sales.

Shares of Dollar Tree rose more than 6% in premarket trading Wednesday.

Starboard Value is pushing the retailer to sell Family Dollar and offer a broader range of products at different price points under the Dollar Tree banner. Starboard also has nominated seven new board members, including Bill Simon, former chief executive of U.S. stores for Walmart Inc., and Kathleen Guion, former president at Dollar General.

Dollar Tree said Wednesday that Carrie Wheeler, a former executive at private-equity investor TPG Global, has been appointed to serve as an independent director on the company's board.

Starboard has asked Dollar Tree to consider joining its competitors in selling some items at price points above $1, such as $1.50 or $2, to boost profits. Dollar Tree, whose products currently all sell for $1, on Wednesday showed some openness to Starboard's proposal to raise prices above $1, saying in a news release it would test doing so for certain products. "While the Company will not undermine this important value proposition for customers, testing new initiatives is an essential component of the Company's ability to evolve," said the company in the release.

Dollar Tree reported $6.21 billion in consolidated net sales for the quarter ended Feb. 2, down about 2% from the comparable period. Weakness in the Family Dollar chain, where sales slipped about 5%, hurt overall results.

The three large dollar chains target slightly different customers. Dollar Tree stores are mostly in suburban locations and sell all items for $1. Dollar General has more rural locations and aims to attract low-income shoppers by selling frequently purchased products at different price points. Family Dollar aims to attract similar low-income shoppers, but nearly half of its stores are in urban locations. Including Family Dollar outlets, Dollar Tree has about 15,000 U.S. stores, roughly equal with Dollar General.

Dollar Tree executives have said their plan to improve sales at Family Dollar is in motion. The retailer aimed to finish around 500 Family Dollar renovations during this past fiscal year, at least 1,000 this current year, and another 1,000 next year, Chief Executive Gary Philbin said in an interview last November.

Because of the goodwill impairment charge, Family Dollar reported a net loss of $2.31 billion, or $9.66 a share, compared with a profit $1.04 billion, or $4.37 a share, in the year-earlier period, when its earnings were helped by a nonrecurring tax benefit.

The company reported an adjusted profit, excluding the impairment charge, of $1.93 a share for the fourth quarter.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

March 06, 2019 09:47 ET (14:47 GMT)

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