Dollar Tree has sold its underperforming Family Dollar business to private equity for $1 billion, nearly 10 years after it bought the chain for $8.5 billion.
The Family Dollar banner was sold to Brigade Capital Management and Macellum Capital Management. It will remain headquartered in Chesapeake, Virginia.
The transaction, subject to customary closing and regulatory conditions, is expected to close in the second quarter.
GlobalData MD Neil Saunders said the sale “closes the book on a sad and troubled chapter for Dollar Tree”, as the company has struggled for over a decade to make the business work.
Dollar Tree’s efforts have been hampered by supply chain issues, poor store locations, a proposition that is not value-centric enough, and other operational problems, Saunders elaborated.
“Dollar Tree bit off far more than it could chew. And, to add insult to injury, the amount it paid for Family Dollar was inflated by a mild bidding war with Dollar General,” the analyst remarked.
According to the analyst, Family Dollar’s pricing is not as sharp as many rivals, and its customer base is nowhere near as loyal. In addition, many of the stores are in areas where competition is getting tougher.
These problems will now fall on the shoulders of a consortium of private-equity investors, Saunders said, adding that they are not easily resolved.
“Private equity has a habit of playing financial games with retailers for short-term returns. In the case of Family Dollar, that may deliver something of a return, but what’s really needed is an injection of investment and operational discipline to put the business back on track,” he added.
Dollar Tree on Wednesday reported a 0.7 per cent increase in sales and a 2 per cent uplift in comparable sales. Its net loss more than doubled to $3.7 billion. The results did not include those of Family Dollar, as it was considered a discontinued operation.
For the full year, net sales increased 4.7 per cent to $17.6 billion and same-store sales grew 1.8 per cent. Net loss rose from nearly $1 billion to $3 billion.
The company expects comparable store net sales growth to be in the range of 3 per cent to 5 per cent in FY25.
