Shares of Dollar Tree (NASDAQ:DLTR) moved higher today after the discount retailer posted better-than-expected fourth-quarter results and said it would close hundreds of Family Dollar locations, as that brand has struggled since Dollar Tree acquired it in 2015. The company took a $2.7 billion goodwill impairment charge in the quarter on Family Dollar, showing it hasn't met expectations.
The stock closed up 5.1% on the news.
In the fourth quarter, Dollar Tree said overall comparable sales rose 2.4%, with the key metric up 3.2% at Dollar Tree locations and 1.4% at Family Dollar. Overall revenue fell 2.4% to $6.21 billion as the company had one fewer week in the quarter, but that still beat estimates of $6.19 billion.
Gross margin declined 220 basis points to 30.8% due to higher markdowns, a reduction in stock-keeping units at Family Dollar, and other costs. Adjusted earnings per share (EPS) still rose, however, due to a lower tax rate, increasing from $1.89 to $1.93, matching estimates.
CEO Gary Philbin said, "Our results demonstrate the increasing strength of the Dollar Tree brand, and accelerated progress on the Family Dollar turnaround, as Family Dollar delivered its strongest quarterly same-store sales growth of the year."
The big news in the report seemed to be that Dollar Tree would accelerate its transformation plans for Family Dollar; it closed 84 stores in the fourth quarter and announced plans to renovate at least 1,000 stores in 2019. Those plans include adding $1.00 Dollar Tree merchandise sections to those stores, "re-bannering" 200 locations as Dollar Tree stores, and separately closing 390 Family Dollar locations.
Investors seemed to cheer the Family Dollar store closures as the brand has long been a thorn in the Dollar Tree's side. In its outlook for 2019, the company projected low-single-digit comparable sales growth and total revenue of $23.45 billion to $23.87 billion, up from $22.8 billion in 2018. On the bottom line, it called for adjusted EPS of $5.16 to $5.56, compared to $5.45 last year.
While that guidance indicates that challenges remain, today's results and the store renovation and closing plan were enough to show investors that Dollar Tree is moving in the right direction.