Investors are taking a positive view of Dollar Tree’s (DLTR) sale of the flagging Family Dollar business and mixed fourth quarter results that depicted a stressed consumer.
Dollar Tree stock jumped as much as 8% in early trading after the discount retailer shared its plans to sell Family Dollar to two private equity firms, Brigade Capital Management and Macellum Capital Management, for $1 billion.
Dollar Tree acquired the Family Dollar brand in 2015 for a grand price tag of $9 billion after it outbid rival Dollar General (DG) to win the chain.
“I strongly believe selling Family Dollar and returning to our roots with an expanded assortment at Dollar Tree has created material value,” CEO Michael Creedon told investors. “2025 is going to be a transition year as we pivot to operating Dollar Tree as a standalone entity.”
Read more about Dollar Tree’s stock move and today’s market action.
NasdaqGS – Nasdaq Real Time Price • USD
The company expects an earnings hit of roughly $0.30 to $0.35 per share from the deal. But the Street largely seemed relieved that Dollar Tree was close to shedding Family Dollar.
“It is truly addition by subtraction as Family Dollar had been a consistent weight on topline performance, margin rate, and management time,” Evercore ISI analysts wrote in a note.
This latest development culminates the discount retailer’s more than decade-long struggle to integrate Family Dollar into its portfolio. The acquisition didn’t go as planned, and Family Dollar struggled to stay relevant and compete with other low-price retailers like Amazon (AMZN) and Walmart (WMT).
“We believe the sale is the right strategic move, as it will allow DLTR to focus on its core Dollar Tree brand, which has historically generated stronger sales, profitability, and cash flow,” CFRA analyst Arun Sundaram wrote in a note Wednesday, citing Family Dollar’s consistent underperformance and execution challenges.
The past year has been marked by Family Dollar store closures and management changes.
Creedon was tapped to take the helm after Rick Dreiling stepped down suddenly in early November due to health reasons. On March 5, Dollar Tree announced Stewart Glendinning will replace current CFO Jeff Davis, who is leaving effective March 30.
Dollar Tree also reported mixed fiscal fourth quarter results on Wednesday before the market open. Here’s what it reported, compared to Wall Street estimates compiled by Bloomberg:
- Adjusted earnings per share: $2.29, versus $2.21
- Revenue: $5 billion, versus $8.29 billion
- Same-store sales growth: 2%, versus 1.52%
Larger check sizes drove stronger-than-expected same-store sales growth in the quarter, and foot traffic also saw an increase of 0.7%.
Creedon said Dollar Tree also grew its share across all income cohorts in the ongoing inflationary environment, including the middle-income earners Dollar Tree considers its “bread and butter” customer base.
“Dollar Tree has done very well in recessions, in pure recessions,” he said on the company’s earnings call. “Right now, what we’re seeing is that lower-income shopper needs us for pack size. They need us for a fill-in. They need … to make their wallet go farther in between paychecks.”
Looking forward, Dollar Tree expects first quarter sales to come between $4.5 billion and $4.6 billion, below Wall Street’s estimates of $7.9 billion, and same-store sales to grow 3% to 5%, greater than Wall Street’s 2.05% expected growth. Adjusted earnings per share are expected to be in the range of $1.10 to $1.25, while the Street expected an adjusted earnings outlook of $1.51 per share.
For the full year, Dollar Tree forecast $18.5 billion to $19.1 billion in net sales and $5.00 to $5.50 for adjusted earnings per share.
A Family Dollar and a Dollar Tree storefront in a strip mall in Waterford, Pa., on Aug. 1, 2023. (Getty Images) · Althom via Getty Images
Tariffs could further complicate Dollar Tree’s turnaround, as dollar store chains have limited room to hike prices and cater to shoppers who depend on government programs.
Overall, direct imports make up 41% to 43% of Dollar Tree’s total retail value purchases, and China supplies the majority of those imports, according to a company filing.
Read more: What Trump’s tariffs mean for the economy and your wallet
In a recent note to clients, Bank of America analyst Robert Ohmes wrote that Dollar Tree could fall back on previous mitigation strategies such as changing items, negotiating with suppliers, eliminating some products entirely, and rolling out multiple price points.
Creedon affirmed those efforts on the call, saying it “put actions in place as soon as November to start mitigating the first round of tariffs.”
“We were able to offset 90% of those first round,” he added. “With the second round, we continue to leverage the tools that we have,” he said, mentioning those above.
With the additional 10% tariff on goods from China and 25% on goods from Canada and Mexico, Creedon said he believes Dollar Tree’s “potential pre-mitigation exposure is approximately $20 million per month.”
April 2 — “Liberation Day,” as President Trump calls it — will offer another major hurdle, as the White House is expected to implement a sweeping package of reciprocal tariffs on the US’s trading partners around the world.
Read more: The latest news and updates on Trump’s tariffs
“There’s still a great deal of uncertainty as to what completely hits, how those change,” Creedon said. “April 2 is a big day in terms of what happens with reciprocal tariffs, and so our teams are actively looking to mitigate, but given the level of uncertainty … we’ve demonstrated that when we’ve got the time, we can mitigate these tariffs.”
Dollar Tree did not include the second round of tariffs in its 2025 outlook.
“We’re positioned better than we ever have before to manage what is a very uncertain and volatile arena that we’re in,” Creedon said.
Rival Dollar General’s exposure to tariffs is much lower, Morningstar analyst Noah Rohr previously told Yahoo Finance, as 80% of its sales are food items, most of which are nonperishable items made in the US, like canned soups, beans, and chips.
—
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at [email protected].
