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Family Dollar and Dollar Tree to close about 1,000 stores

In November, Dollar Tree had said it would be reviewing its Family Dollar business, including potentially shutting down underperforming stores.

Dollar Tree missed market expectations for holiday-quarter sales and profit on Wednesday and laid out plans to shutter 970 of its Family Dollar stores, as the retailer looks to revamp the struggling business.

Shares of the company fell 14% before the bell after it also projected 2024 sales and profit below expectations.

Dollar stores have struggled following a shift in consumer spending to lower-margin essentials from higher-margin discretionary goods. They also face stiff competition from rivals such as Walmart and Chinese e-commerce platform Temu.

“Our biggest problem right now is getting enough merchandise into the stores fast enough so the consumer can respond,” said CEO Rick Dreiling, adding that Family Dollar was continuing to be hurt by macroeconomic uncertainties.

In November, Dollar Tree had said it would be reviewing its Family Dollar business, including potentially shutting down underperforming stores, to return to growth.

The company, which operates around 16,774 stores, said it would close about 600 Family Dollar stores in the first half of fiscal year 2024 and 370 more over a period of a few years, along with 30 Dollar Tree outlets, as their lease terms expire.

As a result, the company took a $594.4 million charge for a portfolio optimization review and incurred a goodwill impairment charge of $1.07 billion, as well as $950 million in other asset impairment charges in the reported quarter.

“There are plenty of investors that don’t like to see so many charges,” Telsey Advisory Group analyst Joseph Feldman said.

Dollar Tree reported a net loss of $1.71 billion, or $7.85 per share in the quarter ended Feb. 3, compared with a year-ago profit of $452.2 million, or $2.04 per share.

It expects 2024 sales between $31 billion and $32 billion, the mid-point of which is below the estimate of $31.65 billion, according to LSEG data.

Annual profit is expected to be between $6.70 and $7.30 per share, the mid-point of which is slightly below expectations of $7.04 per share.