Dollar Tree (NASDAQ:DLTR) announced on Wednesday that it was considering selling its Family Dollar business. In addition, the company announced its Q1 results. The discount store retailer announced that it was exploring strategic alternatives for its Family Dollar business segment, which could include a potential sale, spin-off, or other disposition of the business.
DLTR’s Rationale Behind Family Dollar Business Sale
The company has decided to sell the Family Dollar business less than a decade after a disastrous merger. The Family Dollar business has around 8,000 stores in the U.S. and caters to low-income customers with prices typically ranging from $1 to $10.
This business has struggled in recent years, and last year, DLTR announced the closure of 970 Family Dollar stores. Dollar Tree’s CEO Rick Dreiling stated that the retailer considered the split of the Family Dollar business due to the distinct needs of each chain. Typically, Dollar Tree serves suburban middle-income consumers, while Family Dollar caters to lower-income urban customers.
The retailer has not set a specific deadline for the completion of the strategic alternatives review process.
DLTR’s Q1 Results
Additionally, Dollar Tree announced its first-quarter results with net sales of $7.63 billion, up by 4.2% year-over-year and in line with estimates. The company reported adjusted diluted earnings of $1.43 per share, a decline of 2.7% year-over-year but met Street estimates.
The company’s same-store sales for its Dollar Tree stores increased by 1.7% in Q1, while its Family Dollar and Enterprise same-store sales went up by 0.1% and 1%, respectively.
Meanwhile, DLTR announced that as part of its portfolio optimization strategy, the company closed around 550 stores by the end of the first quarter and expects to close an additional 150 stores by the end of this year.
Dollar Tree’s Q2 and FY24 Outlook
In the second quarter, DLTR expects net sales to range from $7.3 billion to $7.6 billion, while adjusted diluted EPS is estimated to be in the range of $1.00 to $1.10. This is lower than the consensus estimates of $1.20 per share.
The company’s lower-than-expected Q2 earnings outlook is due to higher transportation and other costs related to the loss of its Marietta distribution center. In April, a tornado destroyed the company’s Marietta, Oklahoma distribution center. The damage rendered both inventory and facility unsalvageable. The company suffered losses of $117 million as of May 4, 2024, including $70 million for damaged inventory and $47 million for property and equipment.
In FY24, DLTR has forecasted its net sales outlook to range from $31 billion to $32 billion, while adjusted diluted earnings are likely to be between $6.50 and $7.00 per share.
Is DLTR a Good Stock to Buy?
Analysts remain cautiously optimistic about DLTR stock, with a Moderate Buy consensus rating based on 12 Buys, five Holds, and one Sell. Year-to-date, DLTR has increased by more than 10%, and the average DLTR price target of $151.29 implies an upside potential of 25.8% from current levels. However, these analyst ratings will likely change following DLTR’s Q1 results today.
