By MICHELLE CHAPMAN (AP Business Writer)
Dollar Tree turned into an unexpected loss in the fourth quarter and will shut down almost 1,000 stores after the discount seller reduced the value of a rival chain it bought almost ten years ago.
Dollar Tree intends to close approximately 600 Family Dollar stores in the first half of this year and 370 Family Dollar and 30 Dollar Tree stores over the next several years.
Dollar Tree bought Family Dollar for over $8 billion in 2015 after a bidding war with rival Dollar General, but it has had difficulty integrating the chain.
On Wednesday, Dollar Tree said that it would record a $950 million impairment against the trade name Family Dollar, on top of a $1.07 billion goodwill charge. Family Dollar will spend more than $594 million closing or rebranding stores, essentially erasing profits from the holiday season.
“This dramatic reduction is the final blow in the somewhat mishandled acquisition of the Family Dollar chain, which has caused Dollar Tree nothing but trouble since it was completed back in 2015,” wrote Neil Saunders, managing director of GlobalData. “Basically, almost ten years on, Dollar Tree is still sifting through the mess it inherited and has not been able to completely turn around,” Saunders said.
Saunders said in an emailed statement that nearly 12% of current Family Dollar stores will be closing over the next three years.
Shares of Dollar Tree plummeted 14% at the opening bell Wednesday.
For the three months ended Feb. 3, Dollar Tree lost $1.71 billion, or $7.85 per share. A year earlier the Chesapeake, Virginia, company earned $452.2 million, or $2.04 per share.
Excluding certain items, earnings were $2.55 per share, which is still below the per-share earnings of $2.67 expected on Wall Street, according to a survey by Zacks Investment Research.
Revenue increased to $8.64 billion from $7.72 billion, slightly below Wall Street’s estimate of $8.67 billion.
Dollar Tree has been attracting consumers affected by inflation as they try to reduce spending. During the quarter, sales at Dollar Tree stores open at least a year rose 6.3%, with traffic up 7.1%. While more shoppers were going to stores, they were carefully watching how much they spent, with average ticket down 0.7%.
At Family Dollar, sales at stores open at least a year dropped 1.2%. Traffic increased by 0.7%, but average ticket decreased by 2%.
For fiscal 2024, Dollar Tree forecasts earnings in the range of $6.70 to $7.30 per share. Revenue is expected to be between $31 billion and $32 billion.
Analysts surveyed by FactSet expect full-year earnings of $7.04 on revenue of $31.68 billion.
Dollar Tree expects first-quarter earnings of $1.33 to $1.48 per share on revenue ranging from $7.6 billion to $7.9 billion.
Wall Street anticipates first-quarter earnings of $1.70 on revenue of $7.68 billion.
