STORE SPACES

Dollar Tree to renovate 1,000-plus Family Dollar stores; close up to 390 others

BY Marianne Wilson

Dollar Tree Inc. is embarking on a major renovation initiative for its Family Dollar banner.

The discounter on Wednesday announced fourth quarter results that beat the Street. It also announced plans to renovate at least 1,000 Family Dollar stores to a new model in 2019, with an accelerated renovation schedule in future years. Called “H2” internally, the format, which includes a $1.00 Dollar Tree merchandise section, has significantly improved merchandise offerings, according to the retailer, and has produced increased traffic and an average comparable store sales lift in excess of 10% over control stores.

“H2 performs well in a variety of locations, and especially in locations where Family Dollar has in the past been the most challenged,” Dollar Tree stated.

Also in 2019, the company will rebrand about 200 Family Dollar locations to the Dollar Tree banner. Another 390 Family Dollar stores will be shuttered, which follows the closing of 84 locations in the fourth quarter. The retailer had 7,001 Dollar Tree stores and 8,236 Family Dollar locations as of Feb. 2.

Dollar Tree posted a net loss of $2.31 billion, or $9.66 a share, in the quarter ended Feb.2, compared to earnings of $691.5 million, or $4.37 a share, in the year-ago period. The loss was mostly due to a $2.73 billion non-cash goodwill impairment charge related to the acquisition of Family Dollar in 2015. The charge was nearly a third of the value of Family Dollar, which Dollar Tree acquired in in 2015 for nearly $9 billion after a long and drawn-out bidding war. Adjusted per-share earnings came to $1.93, a penny ahead of Street $1.92.

Consolidated net sales totaled $6.21 billion, better than the $6.19 billion analysts had expected, down from $6.36 billion in the prior year’s fourth quarter, which included 14 weeks. Total same-store sales increased 2.4%, more than expected. Same-store sales rose 3.2% at Dollar Tree and 1.4% at Family Dollar.

“Sales for the quarter were strong,” stated Gary Philbin, president and CEO. “Our results demonstrate the increasing strength of the Dollar Tree brand, and accelerated progress on the Family Dollar turnaround, as Family Dollar delivered its strongest quarterly same-store sales growth of the year.”

For the full year, Dollar Tree’s total net sales increased 2.6% to $22.82 billion from $22.25 billion in the 53-week fiscal 2017. Excluding $406.6 million of sales from the prior year’s 53rd week, net sales increased 4.5%. Enterprise same-store sales increased 1.7%. Same-store sales rose 3.3% at Dollar Tree banner and 0.1% at Family Dollar. As of Feb. 2, the retailer operated 15,237 stores across 48 states and five Canadian provinces under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada.

Dollar Tree offered a mixed outlook as it deals with the threat of increased trade tariffs.

The company is now expecting first-quarter EPS of $1.05 to $1.15 on sales of $5.74 billion to $5.85 billion. The FactSet consensus is for EPS of $1.30 and sales of $5.81 billion. For fiscal 2019, the company is expecting EPS of $4.85 to $5.25 on sales of $23.45 billion to $23.87 billion. The Street forecast is for EPS of $5.78 on sales of $23.89 billion.

“Our guidance is based on the expectation that Section 301 tariffs would move to 25% in March 2019,” the company stated. “If these tariffs do not move to 25%, we expect to see margin benefit in the second half of fiscal 2019.”

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