Dive Brief:

• Dollar Tree on Wednesday announced that up to 390 Family Dollar stores will close in 2019. The company closed 84 Family Dollar stores in the fourth quarter.
• The retailer also reported consolidated net sales for the 13 week fourth quarter fell to $6.21 billion from $6.36 billion in the previous year, which was 14 weeks. Consolidated net sales for the 52-week fiscal 2018 increased 2.6% to $22.8 billion, from $22.3 billion in the 53-week fiscal year 2017. Enterprise same-store sales in the quarter rose 2.4%; same-store sales under the Dollar Tree banner rose 3.2% on constant currency basis, while same-store sales under the Family Dollar banner rose 1.4%, according to a company press release. 
• Additionally, Dollar Tree reported $1.9 billion gross profit, compared to a $2.1 billion in the prior year's 14 week quarter. Gross margin decreased to 30.8%, compared to 33% year over year. The company stated that the decline was due to higher markdowns, including a $40 million SKU rationalization markdown at Family Dollar, along with shrink, domestic freight costs, distribution costs and occupancy costs.

Dive Insight:

Dollar Tree's ambitious announcement last fall to refurbish 1,000 of its Family Dollar locations and to turn 200 of them to Dollar Tree locations signaled a strategy to reposition the company. Today's announcement of Family Dollar store closures is a sign of just how difficult it has been to integrate its acquisition of the discounter.

"The company's balance sheet remains strong with strong credit metrics and healthy cash flow generation and its plan to rationalize and optimize the Family Dollar store base through store closures, rebranding and remodeling is a positive and will improve performance further in 2019," Moody's Vice President Mickey Chadha said in comments emailed to Retail Dive. 

That may be, but it's been expensive in the meantime. The company said it incurred several charges in the quarter related to the struggling banner, including a $2.73 billion non-cash pre-tax and after-tax goodwill impairment charge. "This massive write-down has pushed the company to an eyewatering $2.15 billion operating loss for the quarter and a $939.5 million loss for the full financial year," GlobalData Retail Managing Director Neil Saunders noted in comments emailed to Retail Dive.

It shows that a lot of stores are not working financially, he said in further comments to Retail Dive. "I suspect Dollar Tree does not want to spend time and money refurbishing them," he said. "The blunt truth is that despite the synergistic savings they have extracted, the Family Dollar acquisition has not been the success it was billed to be. Today’s asset impairment is severe, money is being spent on correcting the business, and a large number of stores are being closed. Basically, Dollar Tree bought a business that was ill and is now having to pay to make it better!"

But there has been some progress. The retailer also announced that many systems and operations between the Family Dollar and Dollar Tree brands have been integrated "to a significant degree", including supply chain, global sourcing, finance and inventory processes. CEO Gary Philbin stated that by July 2019 both brands will be unified in one headquarters in Virginia.