Business

Dollar Tree’s sales surge but Family Dollar costs weigh on earnings

Dollar Tree reported Tuesday that thanks to its purchase of Matthews-based Family Dollar, quarterly sales were up more than 48 percent from a year ago. Still, sales missed Wall Street expectations.
Dollar Tree reported Tuesday that thanks to its purchase of Matthews-based Family Dollar, quarterly sales were up more than 48 percent from a year ago. Still, sales missed Wall Street expectations. Bloomberg

In its first earnings report as a combined company, Dollar Tree said Tuesday that thanks to its purchase of Matthews-based Family Dollar, quarterly sales were up more than 48 percent from a year ago.

The Virginia-based discount retailer’s second quarter revenue missed Wall Street expectations, though, and acquisition-related costs ate into quarterly earnings.

Dollar Tree’s acquisition of the local discount chain closed July 6, so total revenue only included one month of Family Dollar sales. Further, Dollar Tree’s year-ago results didn’t include Family Dollar.

The sale of Family Dollar ended a yearlong takeover drama and local control of a homegrown retailer. The deal’s total price tag was about $9.1 billion. As of Aug. 1, the merged company operated 13,864 stores, making it the largest discount chain in the U.S. by store count.

For the three months that ended Aug. 1, Dollar Tree reported sales of $3.01 billion, boosted by $811.6 million in sales from Family Dollar, according to a securities filing. Dollar Tree’s revenue figure was below the consensus estimate of $3.04 billion from analysts surveyed by Bloomberg.

Same-store sales, an industry term for sales at stores open at least a year, rose 2.7 percent over the year thanks to a rise in the number of customers who spent more per visit on average.

For the quarter, Dollar Tree reported a loss of $98 million, or 46 cents a share, down from a profit of $121.5 million, or 59 cents a share, in 2014. Last year’s figures didn’t include Family Dollar results. Excluding acquisition costs, Dollar Tree’s per-share earnings fell to 25 cents in the second quarter from 61 cents a year ago.

“We delivered our 30th consecutive quarter of positive same-store sales, broke ground on our southeast distribution center in South Carolina, successfully completed our acquisition of Family Dollar, and quickly initiated our integration plan,” Dollar Tree Chief Executive Officer Bob Sasser said in a statement.

Dollar Tree said it has started implementing a number of cost-saving initiatives to make the combined company more profitable, including re-bannering Family Dollar stores into Dollar Tree stores, streamlining vendor relationships to get the best prices and optimizing distribution and logistics. Analysts say some corporate job cuts are possible if the parent company identifies back-office job redundancies.

So far, Dollar Tree has re-branded four Family Dollar stores into Dollar Trees. In a call with analysts Tuesday, Dollar Tree executives say they’re aiming to re-banner over 150 family Dollar stores this year.

“Our goal is to put the right banner in the right location to best serve the customer,” Sasser said in the call.

Also this quarter, Dollar Tree said it will open a new South Carolina distribution center in the Upstate Corporate Park (located in Cherokee and Spartanburg counties), to help streamline distribution efforts for the combined company. Executives said the center is expected to be operational in the third quarter of 2016.

Dollar Tree has said it would have to sell 330 Family Dollar stores nationwide, including two in Charlotte, for competitive reasons within 150 days of the deal’s close. The buyer, private equity firm Sycamore Partners, will operate the divested stores under the banner Dollar Express.

Dollar Tree has said it will keep the Family Dollar name on the stores that remain and also will keep Family Dollar’s headquarters in Matthews. Family Dollar CEO Howard Levine will continue in his role, reporting to Sasser. He agreed to stay on for two years after the merger’s closing.

Katherine Peralta: 704-358-5079, @katieperalta

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