Dollar Tree, Inc. DLTR announced plans to shutter Family Dollar's Matthews, NC headquarters by next fall. Simultaneously, it will consolidate Family Dollar's store support centers in Matthews and Chesapeake, VA into its recently completed 12-story - a 510,000 square foot office tower in Chesapeake - as part of the integration of Family Dollar that was acquired in 2015. However, Family Dollar's distribution center in Matthews will remain open following the consolidation.
Notably, the company offered relocation opportunities to roughly 700 associates. Additionally, the affected employees are expected to get job transition benefits and outplacement services. Management estimates total pre-tax expenses of nearly $40-$49 million from the consolidation, out of which $5-$8 million will be spent in fiscal 2018. These expenses will be incurred in relation to job transition and relocation costs, outplacement as well as one-time severance-related gains.
Meanwhile, Dollar Tree remains well on track with the integration of Family Dollar. In the most recent quarter, sales from the Family Dollar banner represented nearly 50% of the company's consolidated sales. Further, the company is undertaking significant store renovation initiatives for Family Dollar to attract more customers. During the second quarter of fiscal 2018, it completed renovations at 109 Family Dollar stores and re-bannered 17 Family Dollar stores to Dollar Tree stores, for a total of 285 projects. Backed by the encouraging results pertaining to the renovations, Dollar Tree plans to extend its target of 450 Family Dollar store renovations for fiscal 2018 to 500.
For fiscal 2019, management expects to set a higher renovations target. While increased costs and cannibalization during the integration and re-banner process are expected to weigh on the company's results for some time, it expects to generate annual run rate synergies worth at least $300 million by the end of the third year of this acquisition. In fact, with this transaction, Dollar Tree has become a mega U.S. discount retailer that can counter competition single-handedly from retail bellwethers in the dollar-discount store segment. The combined chain is positioned to reach out to more value-seeking consumers through a network spanning across vast geographies.
We believe the consolidation of Family Dollar's support centers into its office tower is likely to drive growth through improved ability, and better collaboration and teamwork. On completion, this latest move is expected to facilitate the most significant phase of its integration efforts, thus creating various opportunities for both banners in the future.
In the past month, shares of Dollar Tree have lost 10.3% against the industry 's 2.1% growth. The underperformance might be due to the company's lower-than-expected results in second-quarter fiscal 2018. Notably, this marked the third straight quarter of earnings and sales miss. Following the soft quarterly results, management updated its earnings and sales forecasts for the fiscal year. Earnings per share are now envisioned to be in the $4.85-$5.05 band compared with $4.80-$5.10 estimated earlier.
Currently, Dollar Tree carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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