Dollar Tree Inc. announced that it has sold its Family Dollar division for $1 billion dollars to the investment firms Brigade Capital Management & Macellum Capital Management.
Dollar Tree Inc.’s shares rose 3.4% in the morning on Wednesday, leading S&P premarket gainers. However, by 9:08am, they were only up 0.55%.
Dollar Tree has struggled for nine years to successfully integrate its discount store into their operations. The closing of the deal is expected within 90 days.
The cost of a bad deal
Dollar Tree bought Family Dollar for $8.5 Billion in 2015 after Dollar General and Dollar Tree engaged in a bid war.
It was intended to improve its market position on the discount retail sector, but integration proved challenging.
Dollar Tree’s finances were negatively affected by operational challenges, closures of stores, and a lackluster performance.
Dollar Tree stock fell 47% in the past 12 months, compared to S&P 500 gain of 11%.
In June last year, the company began a review of Family Dollar’s strategic direction. This led to the eventual sale.
In a press release, Chief Executive Mike Creedon said, “With Family Dollar’s sale set to conclude later this year we will be fully able to dedicate ourselves to Dollar Tree’s long-term success, profitability and return on capital.”
Tax benefits and financial relief
Dollar Tree anticipates net sales of approximately $804 Million.
The estimated economic impact is around $350 millions.
Analysts believe that the Dollar Tree sale is a step necessary to help it regain footing.
Robert F. Ohmes, an analyst at BofA Securities, suggested that Family Dollar’s sale could help the retailer unlock its value by allowing them to focus on their core business.
Family Dollar’s headquarters will continue to be located in Chesapeake Virginia, despite the sale.
Mixed results for the fourth quarter
Dollar Tree reported earnings for its fourth quarter fiscal year, with a loss of $1.71bn, or $3.69bn, or 17.17 per share. This compares to $1.71bn in losses the previous year.
On a adjusted basis, however, the earnings per share were $2.29. This was slightly higher than analyst expectations, which had been $2.20.
The total sales of the third quarter were $8.265 Billion, which was higher than analyst expectations of $8.24 Billion.
Dollar Tree saw its same-store sales rise by 2%, thanks to a 0.7% rise in traffic and a 1,3% increase in the average ticket.
The Future
Dollar Tree expects to have net sales between $4.5 and $4.6 billion in the first quarter. Earnings per share will be adjusted at $1.10 or $1.25.
The company anticipates a profit of between $5.00 and $5.50 per share, total sales of from $18.5 to $19.1 Billion, as well as a 3%-5% increase in same-store sales.
Dollar Tree is refocusing its strategy and restoring investor confidence with the Family Dollar Sale.
The post Dollar Tree Stock Rises Despite Sale of Family Dollar At A Huge Loss: Here’s Why may be updated as new information becomes available
