Dollar Tree: "The First Inning"

From “The Dollar Store Downturn” (September 2024): “For now, we remain in limbo on Family Dollar. With the environment becoming more difficult, my assumption is that the (already minimal) proceeds one may have expected from a sale has moved even lower. Personally, I think the more important consideration is to ensure they are squarely focused on the long-term opportunities at their namesake banner. Family Dollar has been a black eye at Dollar Tree for a decade; they are right to accept reality and to move on.”

Thankfully, we now have a resolution: alongside the Q4 FY24 results, Dollar Tree agreed to sell Family Dollar for ~$1 billion. As a reminder, this is a business that they bought in 2015 for ~$9 billion, and which has been a major headache for much of the past decade. In the end, this deal destroyed billions of dollars in value for shareholders; as importantly, it distracted management from focusing on and investing behind opportunities at the core banner. To paraphrase Warren Buffett, Family Dollar was a turnaround that never turned.

The appropriate decision was to move on. On the checklist of items that were imperative to my long-term Dollar Tree thesis, selling FDO was at the top of the list. (As I’ve discussed, this deal could also have meaningful implications for Dollar General.) An impending Family Dollar decision is a key reason why DLTR quickly became a top holding in my portfolio; after a decade on the sidelines, I believe Dollar Tree (DLTR) is a very compelling opportunity.