Dollar Tree (NASDAQ:DLTR) lowered its guidance and said it will close about 1,000 stores, mostly in its Family Dollar unit.
The company said it lost $1.7 billion, $7.85 per share, on revenue of $8.6 billion in the fourth quarter, leading to a full-year loss of $4.55 per share.
DLTR stock fell 7.5% after those earnings came out. It was due to open this morning at $129.50 per share, a market capitalization of just over $30 billion. That represents about a 13% loss in overnight trading.
Family Dollar Failures
The loss came a little over two weeks after Dollar Tree settled with the Department of Justice over allegations involving its warehouse outside Memphis. Family Dollar was fined $41.6 million over rat infestations at the warehouse. It was the biggest penalty ever in a food safety case.
Now, the company plans to close 600 Family Dollar locations by the end of June and another 370 as leases expire over the next few years. It will also close 30 Dollar Tree locations. The company booked an “impairment charge” of $2.6 billion for the closings.
Dollar Tree bought Family Dollar in 2014 after a protracted struggle with rival Dollar General (NYSE:DG).
Investors should have suspected something, as Placer.ai showed little growth in visits to Family Dollar during the 2023 Christmas season. In contrast, visits to Dollar Tree itself grew 15%.
Since the start of the year, Dollar Tree stock was up 5% before earnings, while Dollar General is up 18%. Dollar General had its own troubles last year, a loss leading to the return of former CEO Todd Vasos.
Dollar stores have become controversial in recent years. Critics feel they create “food deserts,” and some communities have moved to restrict them. But Placer.ai says the stores remain popular, with strong foot traffic.
There is a difference between the two Dollar General chains, however. Dollar Tree, which sells most items for about $1, locates many of its stores in middle-class neighborhoods. Family Dollar is a true “dollar store” chain, usually located in low-income areas.
DLTR Stock: What Happens Next?
Dollar Tree named chief operating officer Mike Creedon, a former Advance Auto Parts (NYSE:AAP) executive, to an expanded role heading the chains’ merchandising and supply chain.
It is unclear as of now if Dollar Tree will stick with its Family Dollar chain or jettison it entirely. The latter action could boost DLTR stock.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
