Bussiness
Dollar Tree may shed Family Dollar through sale or spinoff
Are 99 Cents Only stores coming back?
Dollar Tree announced that the company has acquired the leasing rights for 170 of the closed locations of the recently shuttered 99 Cents Only stores.
Fox – LA
June 5 (Reuters) – Dollar Tree DLTR.O said on Wednesday it was exploring options, including a potential sale or spinoff of its Family Dollar banner, as it looks to restructure business amid still-high inflation that continues to strain consumer spending.
The retailer, like its peer Dollar GeneralDG.N, has been grappling with weak discretionary demand as shoppers focus more on less-profitable consumables. It is facing stiff competition from rivals Walmart WMT.N, Target TGT.N and Chinese e-commerce platform Temu, which are also offering lower-priced products to attract budget-stretched Americans.
Family Dollar, which Dollar Tree bought in 2015, has been its main underperformer. Earlier this year, the company had outlined plans to shutter 970 of its Family Dollar stores.
Store closures
The company operates 8,359 stores under the Family Dollar banner, as of Feb. 3. It said it would close an additional 150 stores by the end of fiscal 2024.
“Many of these stores had been under-invested for years, and the capital investment required to fix them could not deliver an acceptable rate of return,” said CEO Richard Dreiling.
The company has not set a deadline or definitive timetable for the completion of the review process and noted there can be no assurance that the process will result in any transaction.
Dollar Tree plus 99 Cents stores: Dollar Tree acquires 170 99 Cents Only Stores, will reopen them as Dollar Tree stores
“Dollar Tree would get nowhere near the $8.5 billion it originally paid (for Family Dollar acquisition),” said Neil Saunders, managing director of GlobalData.
“It is clear to all in the market that Family Dollar is a chain that needs a lot of work and investment, a fact which will also thin out the number of interested parties,” Saunders said.
J.P. Morgan Securities LLC is the financial adviser.
The Wall Street Journal first reported the news on Wednesday.
Share price drops
Shares of Dollar Tree were down 2% in premarket trading, after it forecast annual profit below analysts’ estimates.
It expects adjusted profit for fiscal 2024 to be between $6.50 and $7 per share, the midpoint of which is below LSEG estimates of $6.89.
The company said its outlook reflects increased transportation costs related to the loss of a distribution center in Oklahoma due to a tornado.
Overall same-store sales grew 1% in first quarter, missing estimates.
Sales at dollar stores in recent quarters https://reut.rs/3wXfPBd
(Reporting by Granth Vanaik and Ananya Mariam Rajesh in Bengaluru; Editing by Shilpi Majumdar)
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