Has Dollar Tree gotten Family Dollar turned around?
Just two months ago, Dollar Tree was being urged to sell or spin off its Family Dollar chain. The Family Dollar business, critics argued, was going nowhere. The chain’s same-store sales fell 0.4 percent for the first three quarters 0f 2018, bringing down Dollar Tree’s share price with it. With the release of Dollar Tree’s fourth quarter results, some are pointing to its plans to close or rebrand 390 Family Dollar locations as further proof the chain must go, while others now see that the business may be turning around.
Dollar Tree’s fourth quarter report shows that its namesake banner posted a 3.2 percent gain in same-store sales, while Family Dollar was up 1.4 percent, its best quarterly performance for all of 2018.
“We moved aggressively in the fourth quarter to optimize Family Dollar’s performance, including closing 84 stores and announcing plans to renovate at least 1,000 stores in 2019. The renovated stores will include new $1.00 Dollar Tree merchandise sections,” said Gary Philbin, president and CEO of Dollar Tree, in a statement.
The company also announced that it would convert around 200 Family Dollar stores to the Dollar Tree banner. It plans to permanently close 190 other Family Dollar locations.
Speaking on the retailer’s earnings call this week, the Dollar Tree CEO said the company has “taken the necessary actions to stabilize” its business since acquiring Family Dollar including paying down more than $4 billion in debt. He added that Dollar Tree is now in the position to “invest in and reposition the Family Dollar brand for future success through an acceleration of renovations, free banners and store closings.”
Renovated stores have delivered lifts in comp sales above 10 percent, according to Mr. Philbin.
“Our H2 model has better shopping adjacencies, more productive end-caps, a greater number of freezers and coolers, which allows us to offer more consumables and better serve the mid-week shopping needs of our customers,” he said (via Seeking Alpha). “Its performance has also been enhanced by the introduction of Dollar Tree $1 merchandise throughout the store.”
Lower costs, the result of “indirect procurement” savings realized after the merger with Dollar Tree, have enabled Family Dollar to invest in lower prices and add staff to improve the shopping experience in stores, he said.
- Dollar Tree, Inc. Reports Results for the Fourth Quarter and Fiscal Year 2018 – Dollar Tree, Inc.
- Dollar Tree’s CEO Gary Philbin on Q4 2018 Results (Earnings Call Transcript) – Seeking Alpha
- Should Dollar Tree sell Family Dollar? – RetailWire
- Will Dollar Tree + Family Dollar spell trouble for Dollar General? – RetailWire
DISCUSSION QUESTIONS: Do you think Dollar Tree has figured out how to get its Family Dollar business turned around? Do you see merit in selling the chain now that Family Dollar has begun to show some encouraging signs?