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US discount retailer Dollar Tree has agreed to sell its troubled Family Dollar chain for $1bn, jettisoning a business it purchased for $8.5bn a decade ago.
Dollar Tree said it has entered into an agreement with investors Brigade Capital and Macellum Capital to sell the underperforming Family Dollar, which accounts for about 45 per cent of the company’s more than 16,000 stores in the US and Canada.
The deal, announced alongside quarterly results on Wednesday, marks a reversal for Dollar Tree, which, under previous management, fought its sector rival Dollar General to acquire Family Dollar in 2014. The transaction prompted billions of dollars of impairment charges and store closures over the years and made Dollar Tree a target for activist investors including Starboard and Mantle Ridge.
Dollar Tree’s namesake stores tend to have a bigger presence in middle-class suburbs and carry a greater proportion of discretionary items. Family Dollar’s stores are mainly in less affluent urban neighbourhoods and country towns and offer a variety of packaged and frozen foods as well as other household essentials. More than 40 per cent of the chain’s customers are eligible for government financial assistance.
The Family Dollar sale may help alleviate some of Dollar Tree’s company-specific problems, but discount retailers more broadly are contending with tumbling consumer sentiment and rising uncertainty about the economic outlook along with intensifying competition from the big-box chain Walmart.
Discount retailers did a brisk trade during the 2020 pandemic owing to their sales of food and essential items and continued to ride that wave as inflation surged. But years of cumulative price increases have taken their toll on shoppers, with Dollar General management issuing a bleak warning last year that lower-income households are running out of money at the end of every month.
Shares of Dollar Tree and Dollar General are each down by more than 40 per cent over the past year.
The Family Dollar sale is expected to close in June and Dollar Tree has estimated net proceeds of $804mn from the transaction. Brigade Capital was involved in an unsuccessful proposal last year to take department store operator Macy’s private, while Macellum in recent years has turned its activist eye on Kohl’s.
Mike Creedon, Dollar Tree’s chief executive, said the company “will be able to fully dedicate ourselves to Dollar Tree’s long-term growth, profitability and returns on capital” following the Family Dollar sale.
Dollar Tree on Wednesday presented fourth-quarter results that reported Family Dollar as discontinued operations. The company expects full-year fiscal 2025 net sales from continuing operations to be in the range of $18.5bn to $19.1bn, or growth of 3-5 per cent from a year earlier.
