Should Dollar Tree sell Family Dollar?
A New York hedge fund, which recently took a small stake in Dollar Tree, is pushing the company to sell its Family Dollar business and is seeking seats on the board to make sure the deal is done quickly.
The Wall Street Journal reported that Starboard Value LP, which has acquired a 1.7 percent stake in Dollar Tree, believes that Family Dollar has served as a drag on its parent company stock price. Shares of Dollar Tree have fallen 15 percent over the past year while rival Dollar General’s share price has risen by a similar percentage over the same period. What gives the Starboard Value assertion some credibility is that other investors have also “grown frustrated” with Dollar Tree’s stock performance.
In its most recent earnings announcement, Dollar Tree reported that same-store sales at its namesake chain had grown 2.3 percent for the third quarter while Family Dollar was down 0.4 percent. For the first nine months of the year, Family Dollar’s comps were also down 0.4 percent while Dollar Tree was up 3.3 percent.
The news that investors, activist or otherwise, are pushing Dollar Tree’s board to sell Family Dollar doesn’t come as a big surprise. The chain has been struggling, particularly in relation to rival Dollar General, for years.
Just months before the July 2014 announcement of a deal to be acquired by Dollar Tree following a bidding war with Dollar General, Family Dollar had come off a quarter in which it reported that same-store sales fell more than six percent and it had made the decision to close 370 stores to cut costs.
At the time, Brian Jones, an Edward Jones analyst, told the Charlotte Observer that Family Dollar was a distant second to Dollar General when it came to store productivity. Family Dollar was only generating sales of $180 per square foot compared to Dollar General’s $210.
- Activist Investor Starboard Seeks Changes at Dollar Tree – The Wall Street Journal
- Dollar Tree, Inc. Reports Results for the Third Quarter Fiscal 2018 – Dollar Tree, Inc.
- Family Dollar to close stores and lower prices – RetailWire
DISCUSSION QUESTIONS: Should Dollar Tree sell Family Dollar? What do you think is wrong with Family Dollar’s business, and how do you see the dollar store competitive landscape shaking out?