Dollar Tree Inc has announced plans to close 390 Family Dollar stores after reporting losses of $2.3 billion.
The company announced the plans as it wrote off $2.7 billion, or nearly a third of the value of the struggling discount chain it bought for $9 billion four years ago.
It also announced 200 other stores will be rebranded under the Dollar Tree name.
Though Family Dollar has remodeled some stores and expanded its product range, same-store sales growth has been nearly flat on average in the past two years, pushing down the parent company’s shares seven per cent in the last 12 months.
CNBC reports that on an unadjusted basis the company had a fourth-quarter loss of $2.31 billion.
The company said it would shut 390 Family Dollar stores, besides planned remodeling of 1,000 stores this year to add $1-only items. Dollar Tree had already closed 122 Family Dollar stores in the fiscal year ending February 2.
Chief Executive Officer Gary Philbin said in Wednesday’s statement: ‘We are confident we are taking the appropriate steps to reposition our Family Dollar brand for increasing profitability as business initiatives gain traction in the back half of fiscal 2019.’
The rebranded locations will reportedly get expanded freezer sections and even sell alcohol. They will also reportedly include a $1 Dollar Tree merchandise section.
Dollar Tree Inc. acquired Family Dollar in 2015 for almost $9 billion. The move was expected to bolster its business and better compete with chains like Walmart and rival Dollar General Corp.
Hedge fund investor Starboard Value LP in January urged Dollar Tree to explore all alternatives for its Family Dollar business, including a sale, after years of weakness that has hurt the company’s overall profitability.
The Chesapeake, Virginia-based company, which took a $2.73 billion one-time charge for the decline in the chain’s value in the fourth quarter, also said it would explore pricing some goods above the $1-mark, as Starboard has demanded.
Jeffrey Smith, CEO of Starboard Value, wrote to the company in January, saying: ‘Dollar Tree significantly overpaid for Family Dollar, and this business is proving to be a meaningful distraction.’
Shares of the company rose two per cent as it reported better-than-expected fourth-quarter same-store sales, along with the results of its full strategic assessment of the Family Dollar business.
Same-store sales rose 1.4 percent at the smaller chain in the fourth quarter, the strongest in a year and pushing overall numbers up 2.4 percent, above an average analyst estimate of 1.5 percent rise, according to IBES data from Refinitiv.
The restructuring will weigh on operating income in the first half of 2019 fiscal year, it said, but lead to material improvement in the second half.
The company forecast first quarter earnings of $1.05-$1.15 per share, below analysts’ expectation of $1.29 per share. It said its forecast takes into account a possible rise in U.S. tariff on Chinese products to 25 percent in 2019.