Why Dollar Tree was ashamed of itself for colossal Family Dollar errors

admin March 7, 2019

20 4 minutes read

Why Dollar Tree was ashamed of itself for colossal Family Dollar errors

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Do you crook Mr. Market? How in the world can you Celebrate the well-developed, word dump that was knocked out by struggling the reseller Dollar Tree ( DLTR ) on Wednesday? The press release – or the current management that helped put the press release and weak numbers together – deserves no praise. None. "Data-response time =" 15 "> Do you cut Mr. Market? How in the world can you cheer the well-developed, word dump that was knocked out by struggling with the dealership Dollar Tree (DLTR) on Wednesday? The press release ̵[ads1]1; or the current management team that helped put the press release and its weak numbers together – deserves zero praise. No.

It's really so cut and dry. Hat tip for activist investor Jeff Smith on starboard – you chose an ideal goal to fight for change.

<h2 class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " Dollar Tree blows a lot of smoke "data-reactid =" 17 "> Dollar Tree blows a lot of smoke

<p class =" canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm " type = "text" content = "Dollar Tree shares rallied 5% Wednesday when the company blew a kiss to new nemesis Smith, who is working hard to jump, start selling and profit. The center of the plan is a deeper integration of the branded Family Dollar badge & nbsp; (and its 8,200 plus stores) in Dollar Tree. "data-reactid =" 18 "> Dollar Tree shares stuck 5% Wednesday when the company blew a kiss to new nemesis Smith at It works hard to jump, start stopping sales and profits. The centerpiece of the plan is a deeper integration of the bumbling Family Dollar brand (and its 8 200 plus stores) into Dollar Tree.

Some actions Dollar Tree said it takes to improve performance include:

A multi-pricing test of Dollar Tree, which Smith suggested in a letter to CEO Gary Philbin in January. The Dollar Tree model has long been rooted in selling goods for $ 1.00. But it is a tough model to maintain – and profit from – today with minimum wage and transport inflation as well as tariffs on Chinese goods (where Dollar Tree gets most of its general commodity).
A test of Dollar Tree branded departments inside the Family Dollar stores. Doing this, or the assumption would be, should improve the perception of the price of Family Dollar customers. For many low income jumpers, the Family Dollar is still considered too expensive.
Change of 200 Family Dollar Banners to the Better Performing Dollar Tree banner this year.
Remodeling 1000 Family Dollar sites this year. [19659009] Roll out adult beverages for 1000 Family Dollar stores and add freezers to 400 stores. These are key figures for the low income jumpers.

In another attempted kiss to Smith let Dollar Tree to retired TPG consumer / retail veteran Carrie Wheeler to the board. Wheeler is currently sitting on the clothing brand J.Crew (who has their own operating problems right now).

Philbin is obviously concerned about all this, and works and appeals to investors as soon as possible.

"In addition to synergies, it is important to recognize the profound effect the Dollar Tree and Family Dollar brands have had on each other, and the meaningful value this creates for our shareholders now and then in their future. But the benefits of the merger have not just hosted the Family Dollar brand, Dollar Tree has also benefited. The stores we re-bannered from the Family Dollar are doing well and have improved Dollar Tree's overall profitability, a trend that should continue as we re-banner more stores, " tells Philbin on Wednesday at a conference call. "We have since received very positive feedback from many investors, and we are confident that we are on the right track to reach an inflection point, as we continue to optimize the Family Dollar family fleet through 2019."

<h2 class = "canvas- atom-text-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " What the great investors must have missed

NEW YORK, NEW YORK - DECEMBER 11: A woman walks through a family dollar store on December 11, 2018 in the Brooklyn New York City District Since the income gap between rich and poor continues to grow, dollars and 99 cents stores have become Increasingly popular in both urban and rural America, Dollar General, one of several discount chains, has become one of the fastest growing retailers in the United States, according to the Institute for Local Self Reliance, with over $ 30,000 stores in the United States, up from around 18,000 for Ten years ago, Dollar General and Dollar Tree alone are expected to have 50k stores over the next few years (Photo by Spencer Platt / Getty Images)

A woman goes to a family Dollar store on December 11, 2018 in the Brooklyn New York City. (Photo by Spencer Platt / Getty Images)

Lost in Philbin's uber bullish earnings call and the company's press release are basic recordings of valuable miscues on Dollar Tree. These bad mistakes would shift the power of starboard Smith (and other upset shareholders who have been longer than Smith) in their efforts to shake up Dollar Tree's regime.

Together they paint a picture of a management team that is too late

Some examples of what the market overlooked:

Family Dollar will look closer to 390 stores this year. Dollar Tree didn't spend $ 9 billion to buy Family Dollar to get in and close stores … and transform others.
A massive USD 2.7 billion write-down related to Family Dollar assets (due to the brand's ongoing underperformance against expectations at the time of termination).
The Dollar Dollar gross profit margins were down 400 basis points over the last quarter. The store traffic was under pressure as well.
Dollar Tree gross profit margins were down 90 basis points the following year in the quarter.
Changing the name of 200 stores from Family Dollar to Dollar Tree is related to saying Dollar Tree misunderstood the value of Family Dollar at the time of the acquisition (as it did).
Testing Dollar Tree stores inside the Family Dollar are weird – it actually says to low income customers. Family Dollar doesn't have the best price. Cannibalization anyone?
Whole year earnings guidance of $ 4.85 to $ 5.25 against $ 5.78 consensus.

It's going to be ugly

Stop in Dollar Tree's management doesn't really sound confident in testing multi-prize points in their name stores and one has to wonder if they understand their current problem with a known Wall Street name like Smith and other important shareholders.

"The pure confirmation of a [price] test seems to have given enough investors to hope that the company can be open to major change; however, it is simply too small to continue at this time to trust that the test will prove successful, says Jefferies analyst Christopher Mandeville, who echoed the feelings of Yahoo Finance, among others.

Another screaming move on Dollar Tree: Somehow Wheeler gets to throw his support to hold and invest in Family Dollar despite just being appointed to the board.

"I'm happy to have the opportunity to join the Dollar Tree Board. I have long admired the company's strong leadership position and growth prospects in the value trading sector, says Wheeler in a statement Wednesday. "The Dollar Tree business has a unique niche and an extremely loyal customer base, while Family Dollar represents a tremendous opportunity for value creation. I look forward to contributing to the board to help develop and grow the company."

Throughout, the Dollar Tree management has been stuck in its thinking on Family Dollar by being able to solve and run shareholder values. The last example comes on Wednesday. It's no surprise considering that Philbin spent time as Family Dollars chief executive from July 2015 to December 2017. Dollar Tree's Chairman, Bob Sasser, also served as Dollar Tree's CEO from 2004 to September 2017, and eventually signed off at Family Dollar transaction has.

Both of these two retailers are architects of the Family Dollar-Dollar Tree combination. Of the 13 members of Dollar Tree's board (including Wheeler, Philbin and Sasser), nine were around to approve the Family Dollar acquisition.

Valuable destruction simple and simple, which should not be welcomed by the market. Rather, the heads should roll. Unless the market is unlucky – perhaps it knows that Dollar Tree doesn't get it done – and unlikely – under Philbin and current governance. A press release like that on Wednesday only challenges Smith's investment case and pushes to turn the board down this year.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – -M Mt (0.8em) – sm" type = "text" content = "Still, in a world where value-added retailers such as Target ( TGT ), Walmart and TJX Companies ( TJX ) do so many things to operate successfully in a digital year, Dollar Tree takes $ 2.7 billion write-down on a major acquisition, not a good look. "data-reactid =" 96 "> Still, in a world where value-centric dealers like Target (TGT), Walmart and TJX Companies (TJX) do so many things to operate successfully at the age of digital , Dollar Tree takes a $ 2.7 billion write-down on a major acquisition is not a good look.

The ball is now in Smith's court to seek the next round of pressure – Dollar Tree dropped the ball a while ago.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " Brian Sozzi is an editor in big on Yahoo Finance Follow him on Twitter @BrianSozzi "data-reactid =" 98 "> Brian Sozzi is a major editor in Yahoo Finance. Follow him on Twitter @BrianSozzi

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