Dollar Tree failed to meet market expectations for sales and profit during the holiday quarter and announced intentions to close 970 of its Family Dollar stores in a bid to overhaul the struggling business.
Before the market opened on Wednesday, the company's shares dropped by 14% as it also forecasted sales and profit for 2024 below anticipated levels.
Dollar stores have encountered challenges amid a shift in consumer spending towards lower-margin essentials over higher-margin discretionary items. Additionally, they face tough competition from rivals like Walmart and the Chinese e-commerce platform Temu.
CEO Rick Dreiling commented, "Our primary challenge at the moment is ensuring swift replenishment of merchandise in stores to meet consumer demand," highlighting that Family Dollar continues to grapple with macroeconomic uncertainties.
In November, Dollar Tree announced plans to review its Family Dollar operations, potentially closing underperforming stores to reignite growth.
The company, which operates approximately 16,774 stores, revealed intentions to shutter approximately 600 Family Dollar stores in the first half of fiscal year 2024, along with 370 more over the following years, in addition to 30 Dollar Tree outlets as their leases expire.
Consequently, the company recorded a charge of $594.4 million for a review of its portfolio optimization and faced a goodwill impairment charge of $1.07 billion, along with $950 million in other asset impairment charges during the reported quarter.
"Some investors are unsettled by the magnitude of these charges," remarked Joseph Feldman, an analyst at Telsey Advisory Group.
Dollar Tree reported a net loss of $1.71 billion, equivalent to $7.85 per share, for the quarter ending February 3, in contrast to a profit of $452.2 million, or $2.04 per share, during the same period last year.
The company anticipates sales for 2024 to range between $31 billion and $32 billion, with the midpoint falling slightly below the estimated $31.65 billion, as per LSEG data.
Annual profit is projected to be in the range of $6.70 to $7.30 per share, with the midpoint slightly lower than the expected $7.04 per share.