Dollar Tree reported on Wednesday that it will close almost 1,000 of its Family Dollar stores in the U.S. after it lost $1.71 billion in the fourth quarter of 2023, which ended Feb. 3.
Dollar Tree CEO Rick Dreiling said in a December earnings call that a major part of the loss came from softer same-store sales at Family Dollar stores after a recall of numerous over-the-counter drugs and medical devices in almost two dozen states led to unexpected costs for the brand.
“To this end, we have initiated a comprehensive review of our Family Dollar portfolio to address underperforming stores that are not aligned with our transformative vision for the company,” Dreiling said to analysts on the call.
The result of the review is that 600 Family Dollar stores will close in the first half of 2024, and 370 more, along with 30 Dollar Tree stores, will close over the next few years as their leases expire, the fourth-quarter earnings report said.
The store portfolio review cost the company $594.4 million but is expected to prevent further losses as the company streamlines its portfolio.
Dollar Tree was just slightly below Wall Street’s $2.65 per share at $2.55 on an adjusted basis, and its net sales of $8.63 billion were only a hair off from analysts’ estimates of $8.67 billion.
CFO Jeff Davis reported that the company is “making solid progress on our key growth initiatives. He is further “encouraged by the early results of our business transformation efforts,” he said.
Sales estimates for 2024 are between $31 and $32 billion.
Dollar Tree bought Family Dollar in 2015 in an effort to compete against Walmart and Dollar General. Both brands have existed since the 1950s, and the combined company has 16,775 stores.
About half of those (8,539) are Family Dollar stores, but the brand may be showing signs of redundancy as Dollar Tree offers more “plus” offerings at the $3 and $5 price points.
In addition, Dreiling noted, “Lower-income consumers continue to be very deliberate about their spending.”
The stock dropped more than 13 percent on the news of closings after gaining 14.7 percent in the past three months until Tuesday.
Unlike many of its competitors, such as Walmart, Dollar Tree, and Dollar General, they do not offer online ordering and store pickup or delivery, which may be starting to impact sales.
Dollar Tree adopted a 25-cent price increase on most of its products in 2022, but that may not be enough to match inflationary pressures since COVID-19 led to larger increases in government spending.
Stocks overall were mostly down on Wednesday, with Tesla, GE HealthCare, Williams-Sonoma, and Carnival also significantly dropping.
New reports showed slightly higher-than-expected inflation in February, which is expected to delay Fed interest rate cuts until at least June.
Other retailers also recently announced the closure of large numbers of locations. Foot Locker said it will close 400 stores, mostly in shopping malls, and CVS has announced the closure of 900 locations.
Macy’s said it would close 150 stores, but it would still host the Thanksgiving Day parade.
Other retailers closing smaller numbers of stores include Best Buy, The Children’s Place, Bath & Body Works, and The Gap.
Store closures are nothing new since many consumers have moved online due to convenience and perceived savings. Several retailers, most notably Bed Bath & Beyond, have closed all of their stores and moved completely online.
Many of the low-income consumers served by Dollar Tree and Family Dollar don’t have the resources to shop online, however, so the move to close underperforming locations seems to be merely an effort to dump unprofitable locations.
