Dollar Tree is considering selling problem child Family Dollar

• Dollar Tree is looking at "strategic alternatives" for Family Dollar, which could include selling the chain, it said Wednesday.
• Analysts have described Family Dollar as Dollar Tree's problem child and say it's been a drag on earnings.
• Last year, Dollar Tree announced plans to close nearly 1,000 Family Dollar stores.

Dollar Tree is considering selling Family Dollar, it announced on Wednesday.

Dollar Tree said that it had started a formal review of "strategic alternatives" for Family Dollar, which it said could include "among others, a potential sale, spin off or other disposition of the business."

Dollar Tree, which bought the rival dollar store in 2015 after a bidding war with Dollar General, said last year that it was carrying out a comprehensive review of Family Dollar, including plans announced earlier this year to close about 970 underperforming stores.

In 2022, federal investigators found a rat infestation at a Family Dollar distribution center. This led to product recalls, temporary closures of some of its stores, a $42 million fine, and mountains of bad press.

A spinoff of the Family Dollar chain will likely be welcome news for investors. Analysts have described Family Dollar as the problem child of Dollar Tree and say it's generally been a drag on company earnings.

"By getting rid of the weight the company voluntarily encumbered itself with when it bought Family Dollar back in 2015, Dollar Tree will be able to focus more squarely on its core business which has better prospects and a much stronger position in the market," Neil Saunders managing director of GlobalData Retail wrote in a note to clients on Wednesday.

He continued: "The saga of Family Dollar is a long and unhappy one. For almost 10 years, Dollar Tree has battled to improve a company that it originally fought so hard to buy, investing an extensive amount of capital and energy. There have been pockets and periods of success but, overall, the trajectory has been entirely unsatisfactory. So, on balance, the decision to cut and run is the right one."

As of early May, Family Dollar had nearly 8,000 stores. It posted $36.9 million in operating income for the quarter to May 4, compared to $522.3 million for sister company Dollar Tree, which has about 8,500 stores.