Dollar Tree/Family Dollar Closing 600 Stores This Year, Hundreds More in Next Few Years

The Family Dollar logo is centered above one of its variety stores in Canton, Miss., on Nov. 12, 2020. (Rogelio V. Solis/AP Photo)

In a significant move to optimize its store portfolio, Dollar Tree Inc. announced its decision to close about 600 Family Dollar stores in the first half of fiscal year 2024.

This initiative is part of a comprehensive strategy to improve the company’s profitability and operational efficiency by focusing on stores under the Dollar Tree umbrella that perform better than the underperforming Family Dollar portfolio, which was purchased by Dollar Tree in 2015.

In addition, about 370 Family Dollar and Dollar Tree stores are slated for closure at the end of their respective lease terms, further underscoring the company’s commitment to refining its store network and focusing on high-performing locations.

During an earnings call on March 13, company leaders acknowledged challenges, such as inflation and reduced government benefits such as SNAP benefits (previously known as food stamps), affecting Family Dollar’s lower-income consumer base but remained optimistic about the company’s long-term prospects.

Company leaders also said “shrink,” a category of lost inventory that can include theft, increased throughout 2023.

“We finished the year strong, with fourth-quarter results reflecting positive traffic trends, market-share gains, and adjusted margin improvement across both segments,” said Rick Dreiling, Dollar Tree chairman and CEO. “While we are still in the early stages of our transformation journey, I am proud of what our team accomplished in 2023 and see a long runway of growth ahead of us. As we look forward in 2024, we are accelerating our multi-price rollout at Dollar Tree and taking decisive action to improve profitability and unlock value at Family Dollar.”

4Q23 Performance Highlights and Financial Results

Dollar Tree’s fourth quarter of 2023 showcased a robust increase in consolidated net sales, which rose by 11.9 percent to $8.63 billion, propelled by a 3 percent growth in net sales. The Dollar Tree segment exhibited a notable performance with a 6.3 percent uptick in sales, driven predominantly by a 7.1 percent increase in customer traffic.

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On the flip side, the Family Dollar segment faced challenges, registering a 1.2 percent decrease in net sales, reflecting the adverse effects of the economic environment on the segment’s core customer base.

“Here, persistent inflation and reduced government benefits continue to pressure the lower-income consumers that comprise a sizable portion of Family Dollar’s customer base,” Mr. Dreiling said on the March 13 earnings call.

During the earnings call, company heads explained that the decision to close certain Family Dollar stores was based on various factors, including location, competitive environment, and the stores’ physical conditions, despite the success of strategic initiatives across the board.

“Collectively, we estimate the net sales loss from the stores we intend to close this year is approximately $730 million on an annual run-rate basis,” Mr. Dreiling said. “On the other hand, given their historical underperformance, we would get back approximately 30 cents of annual run rate EPS net of any stranded costs.”

Earnings per share (EPS) is a measure of a company’s profitability, calculated by dividing quarterly or annual income minus dividends by the number of outstanding stock shares.

This strategic decision is viewed as a crucial step toward enhancing the company’s long-term profitability and success.

Losses Amid Momentum

Despite the positive sales momentum for Dollar Tree, the quarter was marked by a net loss of $1.71 billion, largely because of significant non-cash impairment charges and other adjustments.

A non-cash asset impairment charge is an accounting entry that reflects a reduction in the value of an asset because of a decrease in its expected future cash flows or fair value, according to BG trading.

Family Dollar was also fined more than $40 million last year for a rat infestation at a warehouse in West Memphis, Arkansas, that forced hundreds of stores to temporarily close.

The company reported an operating income, adjusted for these factors, of $749 million, a 21.2 percent increase from the year before.

Strategic Initiatives and Transformation Journey

Mr. Dreiling said the company has embarked on a transformative journey, emphasizing the expansion of its multi-price-point strategy.

On the March 13 earnings call, he said this initiative has led to the rollout of $3, $4, and $5 frozen and refrigerated items in more than 6,500 stores, along with $3 and $5 center-store merchandise in about 5,000 stores. The strategy aims to offer a more diverse product assortment to customers, catering to a wider range of needs and preferences.

Jeff Davis, chief financial officer of Dollar Tree, highlighted the company’s solid core operating performance amid the backdrop of some unanticipated developments.

The strategic introduction of $3 and $5 merchandise across various categories is designed to attract a broader customer base, including new and higher-income shoppers. This approach is part of the company’s broader efforts to drive growth, enhance customer experience, and secure a competitive advantage in the retail sector.

Fiscal Year 2024 Outlook and Growth Prospects

For fiscal year 2024, Dollar Tree has set an initial EPS outlook ranging from $6.70 to $7.30, anticipating headwinds in the first half of the year because of current shrink and mix levels.

Nevertheless, the company expects to benefit from favorable freight rates and reduced effects of SNAP benefits reductions throughout the year.

Consolidated net sales are projected to be in the range of $31 billion to $32 billion, with the company aiming for a low- to mid-single-digit increase in comparable store net sales.