Dollar Tree Considers Options For Family Dollar Sale or Spinoff

After a mixed Q1 earnings report, Dollar Tree (DLTR) has announced that it’s currently exploring options with JPMorgan to sell or spin off Family Dollar, as reported by WSJ.

Explaining Earnings

Lower Q1 earnings were due in part to unexciting Easter sales, pointing to varying performance between Dollar Tree and Family Dollar. Dollar Tree reported a 1.7% rise in same-store sales compared to Family Dollar’s modest 0.1% sales growth.

This isn’t altogether surprising. Despite sharing a discount retail focus, Dollar Tree and Family Dollar cater to different consumer segments. Dollar Tree mainly targets suburban shoppers seeking value items, while Family Dollar serves urban areas with groceries and essentials.

Market Sentiment

It’s certainly a fall from grace for the discount retailer, which outperformed during the pandemic. Analysts speculate that Dollar Tree’s true estimated value is around $160 per share, while Family Dollar is worth only around $10 per share as a standalone business. These share prices and market caps point to a challenging year ahead, with Dollar Tree’s stock down nearly 20% YTD.

CEO Dreiling is leading Dollar Tree’s transformation efforts amid high inflation and rising urban theft concerns. The planned closure of nearly 1K Family Dollar stores signifies a strategic shift to optimizing the chain’s nationwide portfolio for more sustainable growth.

Why It Matters

During the pandemic, Dollar Tree and other discount retailers enjoyed record profits. But as they say, ‘Easy come, easy go.’  As Dollar Tree is forced to adapt its business model to a post-pandemic world, leadership is focused on accelerating revenue and profit growth, with new operational efficiencies and customer-centric strategies.