Will Dollar Tree Ever Get Some Value Out Of Its Family Dollar Acquisition?

Since acquiring Family Dollar midway through fiscal 2015, Dollar Tree, Inc. DLTR has struggled to make it generate value for shareholders.

Family Dollar net sales were falling for the majority of fiscal 2016, down from $2.7 billion in the first quarter to slightly above $2.53 billion in Q3. In Q4, sales for the segment reached a recent high of $2.74 billion but dipped slightly in Q1 of fiscal 2017.

Same-store sales growth at Family Dollar has also declined in recent quarters, dropping to negative 1.2 percent in Q1 fiscal 2017.

Dollar Tree overall beat the Street in Q4 and was in line with Q1 estimates, although management did narrow fiscal 2017 guidance. The company does not break out Family Dollar in guidance statements for comparison.

A New Dollar Tree Bull

Despite Family Dollar’s underperformance over the last few quarters, Loop Capital Markets analyst Anthony Chukumba is upgrading Dollar Tree shares from Hold to Buy and raising its price target from $80 to $86.

Chukumba believes Family Dollar will turn positive for investors “one way or another.”

One of those ways is improved financial performance. Chukumba noted more consistent store-level execution in recent channel checks, including improved merchandising.

Another avenue could be the sale of Family Dollar to another company. Dollar General Corp. DG would be a natural fit, being another player in the deep budget retail space.

Wal-Mart Stores Inc WMT and Amazon.com, Inc. AMZN could also be interested.

Chukumba has previously discussed the potential of Amazon in particular acquiring Dollar Tree to further its entrance into brick-and-mortar stores.

In the near term though, the analyst doubts Dollar Tree would be willing to consider a sale, only pursuing one if Family Tree continues to struggle.

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Bernstein Calls Dollar General 'Our Strategic Winner,' Attractive Takeover Target For Amazon ______ Image Credit: By Ildar Sagdejev (Specious) (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 4.0-3.0-2.5-2.0-1.0 (http://creativecommons.org/licenses/by-sa/4.0-3.0-2.5-2.0-1.0)], via Wikimedia Commons