Dive Brief:
- Dollar Tree Inc. plans to close 600 of its Family Dollar stores during the first half of the year, the company said Wednesday. The retailer also intends to close an additional 370 Family Dollar stores and 30 Dollar Tree stores in the coming years as leases expire, CEO Rick Dreiling said during an earnings call.
- Consolidated net sales for the fourth quarter rose 12% to $8.6 billion from $7.7 billion year over year. Quarterly net sales at the company’s namesake banner rose 15% to nearly $5 billion, up from $4.3 billion a year earlier. Family Dollar net sales rose 7% to $3.7 from $3.4 billion. Overall, the company posted a net loss of $1.7 billion for Q4.
- For the full year, consolidated net sales rose 8% to $30.6 billion from $28.3 billion a year earlier. However, the company swung to a net loss of $998 million from a prior year profit of $1.62 billion. Overall same-store sales increased 4.6%. By banner, Dollar Tree's comps rose nearly 6%, while Family Dollar’s comps grew 3.2%.
Dive Insight:
Dollar Tree said in November that it planned to review its Family Dollar portfolio and identify underperforming stores for closure, relocation, or re-bannering. The Virginia-based company, which had 16,774 stores in the U.S. and Canada as of last month, publicly shared the outcome of its review for the first time Wednesday.
Dreiling said persistent inflation and reduced government benefits continue to pressure the lower-income consumers that comprise a sizeable portion of Family Dollar’s customer base. That banner’s Q4 comps declined 1.2%. That’s despite a slight uptick in traffic, which was offset by a 2% ticket decline.
Although Dollar Tree took a $1 billion goodwill impairment charge; $950 million in intangible asset impairment charges and a $594 million charge for its portfolio optimization review in Q4, overall, analysts and industry observers supported the move to reduce Family Dollar’s footprint.
“This is something we support as we believe there are a lot of stores in sub-optimal locations where competition is high and growth potential too low,” Neil Saunders, managing director of GlobalData, said in emailed comments. If all the planned closings move forward, Saunders said that means Family Dollar’s store footprint will shrink by 12% over the next three years.
“This dramatic cull is the coup de grâce in the rather botched acquisition of the Family Dollar chain, which has caused Dollar Tree nothing but hassle since it was completed back in 2015,” Saunders said. Furthermore, Family Dollar’s core shoppers “are not particularly loyal and tend to use it out of convenience more than anything else,” Saunders added. Against a competitive backdrop with rival retailers expanding, “Family Dollar does not want to invest in markets where it cannot win and is not particularly profitable,” Saunders said.
In contrast, Dreiling said the Dollar Tree segment gained 3.4 million new customers in 2023, mostly from households earning over $125,000 a year. He attributed the banner’s performance in part to the ongoing expansion of its multi-price point strategy that has expanded the assortment beyond the company’s namesake price point with food and general merchandise items.
“This year, across 3,000 stores, we expect to expand our multi-price assortment by over 300 items at price points ranging from $1.50 to $7,” Dreiling said. “But even as our multi-price assortment expands over time, the vast majority of the items sold in Dollar Tree stores will remain at our entry-level fixed price point.”
Chief Financial Officer Jeff Davis said that Dollar Tree’s full-year guidance is for consolidated net sales ranging from $31 billion to $32 billion, with a low to mid-single-digit comps store net sales increase for the year.
Telsey Advisory Group analysts, led by Joe Feldman, characterized Q4’s results as mixed and the Q1’s profit outlook as soft but added, “we continue to believe the company remains well-positioned for the longer term to gain market share, given its convenient locations, value merchandise and transformative, initiatives.”
