(Reuters) – Dollar Tree Inc announced plans to close hundreds more Family Dollar stores on Wednesday as it wrote off $2.7 billion, or nearly a third of the value of the struggling discount chain it bought for $9 billion four years ago.
FILE PHOTO: A customer walks out of a Dollar Tree discount store in Austin, Texas, U.S., February 27, 2017. Picture taken February 27, 2017. REUTERS/Mohammad Khursheed
Shares of the company rose 2 percent as it reported better-than-expected fourth-quarter same-store sales, along with the results of its full strategic assessment of the Family Dollar business.
Hedge fund investor Starboard Value LP in January urged Dollar Tree to explore all alternatives for its Family Dollar business, including a sale, after years of weakness that has hurt the company’s overall profitability.
Though Family Dollar has remodeled some stores and expanded its product range, same-store sales growth has been nearly flat on average in the past two years, pushing down the parent company’s shares 7 percent in the last 12 months.
Same-store sales rose 1.4 percent at the smaller chain in the fourth quarter, the strongest in a year and pushing overall numbers up 2.4 percent, above an average analyst estimate of 1.5 percent rise, according to IBES data from Refinitiv.
The company said it would shut 390 Family Dollar stores, besides planned remodeling of 1,000 stores this year to add $1-only items. Dollar Tree had already closed 122 Family Dollar stores in the fiscal year ending Feb. 2.
The Chesapeake, Virginia-based company, which took a $2.73 billion one-time charge for the decline in the chain’s value in the fourth quarter, also said it would explore pricing some goods above the $1-mark, as Starboard has demanded.
“We are confident we are taking the appropriate steps to reposition our Family Dollar brand for increasing profitability as business initiatives gain traction in the back half of fiscal 2019,” Chief Executive Officer Gary Philbin said in Wednesday’s statement.
The restructuring will weigh on operating income in the first half of 2019 fiscal year, it said, but lead to material improvement in the second half.
The company forecast first quarter earnings of $1.05-$1.15 per share, below analysts’ expectation of $1.29 per share. It said its forecast takes into account a possible rise in U.S. tariff on Chinese products to 25 percent in 2019.
Reporting by Soundarya J in Bengaluru; Editing by James Emmanuel