Please ensure Javascript is enabled for purposes of website accessibility

Large Shareholder Speaks Up and Sends Dollar Tree Shares 5% Higher

By Daniel Miller - Updated Apr 15, 2019 at 11:07AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Starboard Value hedge fund suggested exploring alternatives for Family Dollar stores, a board shake-up, and pricing changes.

What happened

Shares of Dollar Tree Inc. (DLTR 0.27%), an operator of more than 15,100 stores across 48 states and five Canadian provinces under brands that include Dollar Tree, Family Dollar, and Dollar Tree Canada, were up 5% as of 3:46 p.m. EST after an activist hedge fund made a couple of major suggestions.

So what

Activist hedge fund Starboard Value LP, the ninth-largest Dollar Tree shareholder with a 1.7% stake, proposed that the discount chain sell its underperforming Family Dollar business and should replace a majority of the board of directors. Originally, Dollar Tree's acquisition of 8,000 Family Dollar stores was supposed to help battle competition from other rival discount stores as well as from Walmart, but same-store sales have flatlined over the past two years despite remodeling stores and increasing the product offerings. Dollar Tree's stock performance has also lagged behind competitor Dollar General over the past year.

DLTR Chart

DLTR data by YCharts.

Now what

According to Dollar Tree's press release:

Dollar Tree's Board and management team welcome constructive input from shareholders about ways to further create value for all Dollar Tree shareholders. While we appreciate Starboard's investment and will evaluate any suggestions they may have as we would with any investor, we note that Starboard's nominations for a majority of the board were made without seeking any engagement or making any communication to the Company.

View from behind a cart in the aisle of a retail store

Image source: Getty Images.

There seems to be merit in Starboard's suggestion to sell Family Dollar, as the Dollar Tree branded stores drive the company's overall profitability and would be better valued on their own. Another Starboard suggestion was to raise some prices above $1, as trade tensions between the U.S. and China could negatively impact profitability. It's also possible that Dollar Tree's strict $1 price enforcement has caused products to be of lower quality than in past years, which has eroded consumers' perceived value and hampered business.

Investors will have to wait to see how this all shakes out, but it's a positive development that a large shareholder is at least asking the right questions and making suggestions.

Check out the latest Dollar Tree earnings call transcript.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dollar Tree, Inc. Stock Quote
Dollar Tree, Inc.
DLTR
$156.27 (0.27%) $0.42
Dollar General Corporation Stock Quote
Dollar General Corporation
DG
$246.35 (0.60%) $1.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.