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Dollar Tree Considers "Strategic Alternatives" For Troubled Family Dollar Unit 

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by Tyler Durden
Thursday, Jun 06, 2024 - 09:45 AM

Dollar Tree shares leaked lower in premarket trading after the company reported adjusted earnings per share for the first quarter, which missed the average analyst estimate tracked by Bloomberg. The company announced "strategic alternatives" for its troubled Dollar Family Business segment, an indication a potential sale or spinoff could be ahead.

Here's a snapshot of first-quarter earnings (courtesy of Bloomberg): 

  • Adjusted EPS $1.43 vs. $1.47 y/y, estimate $1.44 (Bloomberg Consensus)

  • EPS $1.38 vs. $1.35 y/y

  • Enterprise comparable sales +1% vs. +4.8% y/y, estimate +2.33%

  • Family Dollar comparable sales +0.1% vs. +6.6% y/y, estimate +0.1%

  • Dollar Tree Segment comparable sales +1.7% vs. +3.4% y/y, estimate +4.39%

  • Net sales $7.63 billion, +4.2% y/y

  • Dollar Tree net sales $4.17 billion, +5.9% y/y, estimate $4.24 billion

  • Family Dollar net sales $3.46 billion, +2.2% y/y, estimate $3.39 billion

  • Gross profit margin 30.8% vs. 30.5% y/y, estimate 30.8%

  • Dollar Tree gross margin 35.4% vs. 35.3% y/y, estimate 35.7%

  • Total location count 16,397, -0.1% y/y, estimate 16,613

  • Dollar Tree Locations 8,520, +4.5% y/y, estimate 8,378

  • Family Dollar locations 7,877, -4.7% y/y, estimate 8,215

It's worth noting that Wall Street analysts have highlighted the negative impact of the struggling Family Dollar unit on Dollar Tree's overall earnings. The unit was acquired during a fierce bidding war with Dollar General for $8 billion in 2015.

Perhaps this is why Dollar Tree announced Wednesday that its "has initiated a formal review of strategic alternatives for the Company's Family Dollar business segment, which could include among others, a potential sale, spinoff or other disposition of the business." 

Chairman and CEO Rick Dreiling said in a statement, "The unique needs of each banner at this time – transformation at Family Dollar and growth acceleration at Dollar Tree – lead us to the decision to conduct a thorough review of strategic alternatives for the Family Dollar business."

"By getting rid of the weight the company voluntarily encumbered itself with when it bought Family Dollar back in 2015, Dollar Tree will be able to focus more squarely on its core business which has better prospects and a much stronger position in the market," Neil Saunders managing director of GlobalData Retail wrote in a note to clients. 

Dollar Tree shares have been halved since late 2022. Shares in premarket trading in New York are lower by about 2%. 

Dollar Tree reaffirmed its fiscal 2024 outlook of $31 billion to $32 billion versus the estimate of $31.41 billion. 

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