CHESAPEAKE, Va. — Dollar Tree Inc. plans to renovate at least 1,000 Family Dollar stores this year and close hundreds of others as it seeks to improve the performance of the chain it acquired in 2015 following a bidding war with Dollar General Corp.
Dollar Tree announced the plans as it reported fiscal fourth quarter and full-year financial results that included a $2.73 billion charge against fourth quarter earnings to reflect the diminished value of the Family Dollar business.
Dollar Tree expects to close 390 Family Dollar stores this year and convert about 200 to the Dollar Tree banner.
“I consider the Dollar Tree brand to be the most uniquely differentiated and the principal business model of the U.S. value retail sector, evidenced by achieving our 44th consecutive quarter — that’s every quarter since 2007 — of positive comps without moving a price point,” Gary Philbin, Dollar Tree’s president and chief executive officer, said this month during an earnings call with analysts that occurred as the company was unveiling its restructuring plans.
“We are in control of our margins even with a fixed price point,” he added. “Since our Family Dollar acquisition, we have taken the necessary actions to stabilize the business, capture synergies in both brands, rebuild the leadership team, introduce and develop assured services infrastructure, integrate systems, create smart ways for our customers to save, improve our stores’ standards, invest in labor and price and, importantly, to repay more than $4 billion worth of debt.
“We are now at a stage to be able to invest in and reposition the Family Dollar brand for future success.”
Dollar Tree said its has developed a new format, known internally as H2, for both new and renovated Family Dollar stores. The format features new merchandise offerings, including an assortment of $1 merchandise like that offered in Dollar Tree outlets.
H2 prototypes have produced increased traffic and provided an average comparable-store sales lift in excess of 10% over control stores, the company said, adding that the H2 performs well in a variety of locations, including places where Family Dollar has been most challenged in the past.
In the current fiscal year, the Family Dollar chain will seek rent concessions from landlords for underperforming stores, the company said. If it does not get concessions, it will close more stores.
Since the acquisition, Dollar Tree has been shuttering 75 underperforming Family Dollar stores a year, renovating others and rebranding some as Dollar Tree outlets.
Renovation of the Family Dollar stores will include the introduction of adult beverages to about 1,000 stores and the expansion of freezers and coolers in about 400 stores.
Dollar Tree reported that fourth quarter comparable-store sales had increased 2.4%, or 2.3% when adjusted to include the impact of Canadian currency fluctuations. Comps rose 3.2% for the Dollar Tree banner and 1.4% for the Family Dollar banner.
“Sales for the fourth quarter were strong for both banners,” Philbin said. “Our results demonstrate the increasing strength of the Dollar Tree brand and accelerated progress on the Family Dollar turnaround, as Family Dollar delivered its strongest quarterly same-store sales growth of the year.
“Our merchants at both banners have delivered a 2019 plan that we believe overcomes the effect of most tariffs at the 25% level and provides opportunity in the back half of the year if tariffs [on merchandise imported from China] are not increased.”