Family Dollar brand sale being considered by Dollar Tree.

• Family Dollar, the grocery-focused brand owned by Dollar Tree, is being considered for sale following the closure of over 500 stores in the recent quarter.
• The discounter reported first-quarter earnings that met expectations.
• Low-end consumers are becoming increasingly weary, making it difficult for dollar stores to cope with rising costs.

On Wednesday, it was announced that Family Dollar, its more grocery-focused brand, is being considered for a sale.

The company announced that it had closed over 500 Family Dollar stores during its first quarter, in an effort to revitalize the struggling business.

""Family Dollar is making progress with its targeted strategy, but the unique needs of each banner require a review of strategic alternatives for the Family Dollar business," the company stated in a press release."

Since its acquisition by Dollar Tree in 2015 for nearly $9 billion, Family Dollar has been facing challenges in competing against its major rival.

The sale review process is being conducted by the company, with JPMorgan and Davis Polk & Wardwell serving as advisors. No deadline or definitive timetable has been set for the review process.

Shares of Dollar Tree fell about 2% in premarket trading Wednesday.

Dollar Tree's update coincided with its fiscal first-quarter earnings report, which showed that Family Dollar underperformed.

The sales for the company's Dollar Tree brand increased by 1.7%, while Family Dollar sales only rose by 0.1%. Additionally, enterprise sales saw a growth of 1%.

The revenue increased to $7.63 billion, representing a roughly 4% growth from the previous year's $7.32 billion.

The company anticipates that sales for the second quarter will fall between $7.3 billion and $7.6 billion. The Dollar Tree banner is expected to experience sales growth of between 2% and 4%, while the Family Dollar segment is predicted to be approximately flat.

Based on a survey of analysts by LSEG, how did the discounter perform in its first fiscal quarter compared to Wall Street's expectations?

• Earnings per share: $1.43 cents vs. $1.42 expected
• Revenue: $7.63 billion vs. $7.63 billion expected

The company's net income for the three-month period ending May 4 was $300.1 million, or $1.38 cents per share, compared to $299 million, or $1.35 cents per share, in the same period a year ago. Adjusting for one-time items, including the cost of store closures, the company reported earnings of $1.43 per share.

The company reported losses of $117 million in early May due to the tornado that destroyed its distribution center in Marietta, Oklahoma on April 28. The facility sustained significant damage, and the inventory and facility itself are not salvageable, Dollar Tree stated in its report.

Insurance recoveries are expected to offset the losses incurred by the company.

Despite the tough times faced by the dollar store segment, discounters are losing market share to value retailers like Walmart and e-commerce retailers like Temu.

While Dollar Tree missed expectations for holiday-quarter sales in its fourth quarter earnings report, its main competitor exceeded estimates.

Since early 2023, Dollar Tree has been undergoing a broader transformation, led by CEO Richard Dreiling, who previously headed Dollar General.

Shares of the company have pulled back roughly 15% in 2024.