Discount retail chain Dollar Tree announced it plans to close 390 Family Dollar stores this year. The company took a $2.73 billion charge against the Family Dollar business during the fourth quarter.
“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,” CEO Gary Philbin said during the earnings announcement.
The company said it would rebrand about 200 Family Dollar stores as Dollar Trees and renovate 1,000 locations. About 400 stores would get expanded freezer and cooler sections.
Chief Financial Officer Kevin Wampler said the costs to remodel stores can range from $100,000 to $150,000.
The announcement follows a push by activist investor Starboard Value, which has a 1.7% stake in the company, to change its pricing and sell the store.
Dollar Tree opened 143 stores in the fourth quarter, closed 84 Family Dollar stores and 10 Dollar Tree stores, and expanded or relocated 14 stores. The company had 7,001 Dollar Tree locations and 8,236 Family Dollar stores as of Feb. 2.
John Zolidis, president of Quo Vadis Capital, said Dollar Tree’s acquisition of Family Dollar may have emboldened it to change pricing at its stores, but that was a risky strategy.
“The $1-only proposition is what makes people love Dollar Tree so much,” Zolidis said. “Moving away from that brand equity does present a pretty significant risk to the concept on a long-term basis if it becomes just another store. Right now, it’s unique.”
Dollar Tree reported an adjusted profit of $1.93 per share for the quarter, beating analyst estimates of $1.92 per share. On an unadjusted basis, the company reported a loss of $2.31 billion, or $9.66 a share.
Neil Saunders, managing director of retail consultancy GlobalData, said there was no reason why moving away from the $1-only model could not work, noting it was used by Dollar General and other value brands.