Investors have a positive view on the sale of the flagged family dollar business Dollar Tree (DLTR) and the mixed results of the fourth quarter depicting stressed consumers.
Dollar Tree shares jumped 8% in early trading after discount retailers shared plans to sell family dollars to two private equity companies, Brigade Capital Management and Macellum Capital Management for $1 billion.
Dollar Tree acquired the Family Dollar Brand in 2015 at a spectacular price of $9 billion after surpassing rival Dollar General (DG) to win the chain.
“We strongly believe that selling family dollars and returning to our roots with our expanded assortment of Dollar Tree creates material value,” CEO Michael Creedon told investors. “2025 will be a transition year to run Dollar Tree as a standalone entity.”
Read more about Dollar Tree stock movements and market action today.
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The company expects a revenue hit of around $0.30 to $0.35 per share from the deal. However, the streets seemed almost relieved that the dollar tree was close to abandoning the family’s dollars.
“Family dollars were a consistent weight for topline performance, margin rates and management times, so subtraction really added,” an analyst at Evercore ISI wrote in a note.
This latest development will pinnacle the more than a decade of discount retailers’ struggle to integrate family dollars into their portfolio. The acquisition didn’t go as planned, and the family dollar remained relevant and struggled to compete with other low-cost retailers such as Amazon (AMZN) and Walmart (WMT).
CFRA analyst Arun Sundaram believes sales are the right strategic move as DLTR can focus on the Coadar Tree brands that have historically generated stronger sales, profitability and cash flow.”
The past year has been marked by family dollar stores closures and changes in management.
After Rick Dreilling suddenly resigned in early November due to health reasons, Creedon was taken to the helm. On March 5th, Dollar Tree announced that Stewart Glendinning would replace current CFO Jeff Davis.
Dollar Tree also reported mixed results for the fourth quarter on Wednesday, before the market opened. This is what was reported compared to Wall Street estimates compiled by Bloomberg.
Adjusted earnings per share: $2.29, $2.21
Revenue: $5 billion, $82.9 billion
Sales growth for the same store: 2%, 1.52%
The story continues
Larger check sizes increased sales in the same store, which were stronger than expected in the quarter, and foot traffic also increased by 0.7%.
Creedon said Dollar Tree has expanded its share across all income cohorts in the ongoing inflation environment, including middle-income earners trees, while taking into account their “bread and butter” customer base.
“The dollar tree has been very successful amid a recession, a pure recession,” he said in a company’s revenue call. “What we’re looking at now is that low-income shoppers need us in pack sizes. They need to fill us up. They… need to go further with their wallets between their pay.”
Looking forward to it, Dollar Tree expects first quarter sales to fall below $4.5 billion to $4.6 billion, below the estimated $7.9 billion on Wall Street, with sales at the same store increasing by 3% to 5%, exceeding the expected growth rate of Wall Street of 2.05%. Adjusted earnings per share is expected to range from $1.10 to $1.25, while Street was expecting an adjusted earnings outlook of $1.51 per share.
Over the year, Dollar forecasts between $18.5 billion and $19.1 billion and between $5.00 and $5.50 on adjusted earnings per share.
Family Dollar and Dollar Tree Storefront (Getty Images) at Strip Mall in Waterford, Pennsylvania on August 1, 2023 ・Alto via Getty Images
Dollar store chains have limited room to raise prices and tariffs can further complicate Dollar Tree turnarounds as they cater to shoppers who rely on government programs.
Overall, direct imports account for 41% to 43% of Dollar Tree’s total retail price purchases, with China supplying the majority of these imports.
Read more: What Trump’s tariffs mean for the economy and your wallet
In a recent note to clients, Bank of America analyst Robert Orms wrote that Dollar Tree could rely on previous mitigation strategies such as changing items, negotiating with suppliers, eliminating some products completely, and rolling out multiple prices.
Creedon confirmed these efforts of the call by saying “we will install actions to reduce the tariffs for the first round in November.”
“We managed to offset 90% of the first round,” he added. “In the second round, we continue to utilize the tools we have,” he said.
Creedon said it considers Dollar Tree’s “approximately $20 million per month” to surcharge for products from China and 25% of products from Canada and Mexico.
April 2 – As President Trump calls it, “Liberation Day” will offer another major hurdle as the White House is expected to implement a drastic package of mutual tariffs on its US trading partners around the world.
Read more: Latest news and latest news on Trump tariffs
“There’s still a lot of uncertainty about what’s totally hit and how they’ll change,” Creedon said. “April 2 is a big day in terms of what happens with mutual tariffs. So, our team is actively trying to mitigate, but taking into account the level of uncertainty…we demonstrated that we can reduce these tariffs when we spent our time.”
Dollar Tree did not include second round customs duties in its 2025 outlook.
“We are in a better position than ever to manage the extremely uncertain and unstable arena we are in,” Creedon said.
Morningstar analyst Noah Roll previously told Yahoo Finance. Morningstar analyst Noah Roll previously told Yahoo Finance, as 80% of the sale is food, most of which are rot-resistant items made in the US, such as canned soups, beans, and chips.
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Brooke DiPalma is a senior reporter on Yahoo Finance. Follow her on X at @brookedipalma or email her at bdipalma @yahoofinance.com.
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