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Dollar Tree's decade-long investment in Family Dollar has come to a disappointing end. The company announced on Wednesday that it would sell the struggling discount chain to private equity firms Brigade Capital Management and Macellum Capital Management for $1 billion—a stark contrast to the $8.5 billion it paid for the acquisition in 2015.
The sale follows months of speculation, as Dollar Tree explored various options to offload the underperforming business. With 7,600 stores as of February 1, Family Dollar had become a financial burden, failing to meet expectations amid stiff competition from Walmart, Amazon, Shein, and Temu. Industry analysts have long criticized the discount chain's performance, citing its inability to adapt to changing consumer habits and economic conditions.
"It is truly 'addition by subtraction' as Family Dollar had been a consistent weight on topline performance, margin rate, and management time," said Evercore analyst Michael Montani. The chain's struggles were largely due to declining sales in discretionary items, such as home decor and apparel, as inflation forced consumers to cut back on non-essential spending.
The financial impact of the sale was immediate. Dollar Tree's stock surged by as much as 6% in premarket trading following the announcement but later gave up some of its gains after executives acknowledged ongoing cost pressures. The company revealed that newly imposed tariffs on imports from Canada, China, and Mexico—introduced in March by President Donald Trump—could cost approximately $20 million per month.
Despite these challenges, Dollar Tree's financial performance remained relatively stable. Excluding Family Dollar, the company reported $5 billion in net sales for the quarter ending February 1, a slight increase from the previous year's $4.96 billion. Moving forward, Dollar Tree expects total net sales from continuing operations to range between $18.5 billion and $19.1 billion in 2025.
The discount retail sector as a whole is feeling the effects of inflation. Competitor Dollar General recently lowered its annual sales and profit forecasts, attributing weaker performance to declining consumer spending power. "Doesn't matter how much money you make, everybody is hurting right now," Dollar Tree CEO Mike Creedon remarked in a post-earnings call, acknowledging the growing financial strain on shoppers.
While Dollar Tree aims to refocus its business, analysts remain skeptical about its growth prospects. "The outlook for 3% to 5% growth in comparable sales seems aggressive in this macro environment," noted Mari Shor, senior equities analyst at Columbia Threadneedle Investments.
