Dollar Tree swung to a surprise fourth-quarter loss and will close nearly 1,000 U.S. stores after slashing the value of a rival chain it acquired almost a decade ago.
Dollar Tree plans to close about 600 Family Dollar stores in the first half of this year, along with 370 Family Dollar and 30 Dollar Tree stores over the next several years.
The decision to close the stores came following a portfolio review “to identify and address underperforming stores and invest in improved store standards and growth,” a spokesperson for Dollar Tree told CBC News in a statement.
The changes impact the company’s U.S. stores. Canadian stores were not part of the review, the spokesperson said.
The discount retailer acquired Family Dollar for more than $8 billion US in 2015 after a bidding war with rival Dollar General, but it has had difficulty absorbing the chain.
On Wednesday, Dollar Tree said that it would record a $950 million US 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 cull is the coup de grâce in the rather botched acquisition of the Family Dollar chain, which has caused Dollar Tree nothing but hassle since it was completed back in 2015,” wrote Neil Saunders, managing director of GlobalData.
“Basically, almost 10 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 per cent of current Family Dollar stores will be closing over the next three years.
Sales at discount chain Dollarama have jumped by close to 17 per cent as financially strapped Canadians search for bargains amid high inflation. But the bargain store chain hasn’t been immune to inflation either and is facing some stiff competition from rivals.
Shares of Dollar Tree tumbled more than 14 per cent Wednesday. For the three months ending Feb. 3, Dollar Tree lost $1.71 billion US, or $7.85 per share. A year earlier, the Chesapeake, Va., company earned $452.2 million US, or $2.04 per share.
Revenue climbed to $8.64 billion US from $7.72 billion, a bit below Wall Street’s estimate of $8.67 billion.
Dollar Tree has been attracting consumers who have been stung by inflation as they seek to cut spending.
During the quarter, sales at Dollar Tree stores open for at least a year climbed 6.3 per cent, with traffic up 7.1 per cent. While more shoppers were heading to stores, they were closely watching how much they spent, with the average transaction down 0.7 per cent.
