Dollar Tree, on Wednesday, fell short of market expectations for sales and profit in the holiday quarter and unveiled plans to close 970 of its Family Dollar stores, aiming to rejuvenate the struggling segment of its business.
Following this announcement, Dollar Tree’s shares declined by approximately 14%, coupled with a forecast for 2024 sales and profit that also failed to meet expectations, leading to a 2.8% drop in shares of rival Dollar General Corp.
The dollar store sector has faced challenges amidst competition for consumer spending from Chinese e-commerce giant Temu, operated by PDD Group, offering low-cost discretionary merchandise, including $4 home decor items, in the United States.
Other competitors vying for budget-conscious shoppers include Walmart, known for its consistently low prices, especially in groceries, and Target, which is expanding its range of products priced below $10, spanning home, personal care, and electronics.
CEO Rick Dreiling cited the primary obstacle as the difficulty in stocking stores promptly enough to meet consumer demand, noting that Family Dollar continues to grapple with macroeconomic uncertainties.
In November, Dollar Tree had announced a comprehensive review of its Family Dollar business, contemplating the closure of underperforming stores to reignite growth.
The company, which operates approximately 16,774 stores, disclosed plans to shutter around 600 Family Dollar stores in the first half of fiscal-year 2024 and an additional 370 over the following years, alongside 30 Dollar Tree outlets as their leases expire.
Meanwhile, Temu is intensifying its efforts in digital and television marketing to attract customers away from dollar stores and traditional brick-and-mortar retailers.
Consequently, Dollar Tree incurred charges of $594.4 million for a portfolio optimization review, a goodwill impairment charge of $1.07 billion, and $950 million in other asset impairment charges in the reported quarter.
For the quarter ending Feb. 3, Dollar Tree reported a net loss of $1.71 billion, or $7.85 per share, in stark contrast to a year-ago profit of $452.2 million, or $2.04 per share.
