An investor in Dollar Tree Inc. is advocating that the retailer sell off its troubled Family Dollar unit while expanding price points at its namesake stores.
Starboard Value, a New York-based investor which said it held 1.7% of the outstanding shares of the Chesapeake, Va.-based discounter, also said it had presented a slate of seven board candidates that would stand for election at Dollar Tree’s annual meeting.
Starboard laid out plans for Dollar Tree in a letter addressed to CEO Bob Sasser and the company’s board of directors.
Dollar Tree in a statement said its board of directors would make recommendations to the unnamed board candidates as part of an upcoming proxy statement but noted it has added four new board members since 2016, including, most recently, former Harris Teeter CEO Thomas "Tad" Dickson.
“Dollar Tree’s Board and management team welcome constructive input from shareholders about ways to further create value for all Dollar Tree shareholders. While we appreciate Starboard’s investment and will evaluate any suggestions they may have as we would with any investor, we note that Starboard’s nominations for a majority of the board were made without seeking any engagement or making any communication to the company,” the statement said. “We look forward to the opportunity to engage with Starboard regarding any suggestions they may have, and we will continue to stay close to our shareholders on matters of importance to them and keep taking actions to drive shareholder value.”
Starboard’s letter to the board argued that Dollar Tree should look to sell the Family Dollar banner as opposed to its ongoing effort to fix it. Dollar Tree acquired that business for $8.5 billion in 2005 but has been unable to sufficiently revive sales there, leading to a loss of stock value in the company. “The underperformance at Family Dollar since the acquisition has persisted long enough,” Starboard’s Jeffrey Smith said in the letter. “It is time to consider other choices, as hoping for improvement that continues to be elusive is no longer acceptable. We believe that Family Dollar is currently being ascribed very little value in the market and is a drag on Dollar Tree’s valuation multiple.”
The company recently detailed plans to accelerate an ongoing renovation program at Family Dollar stores, acknowledging it may have acted too cautiously to address its struggles.
Starboard also urged Dollar Tree to break with long-standing practice at its namesake banner and offer goods at price points other than $1, saying adherence to the single price-point practice impedes quality and choice for customers, increasingly so amid inflation and tariff pressures.
Dollar Tree more than a decade ago experimented with multiple price points, devoting sections of its stores to “Oops” merchandise priced at $2 or $3, but it eventually abandoned the practice. The company has long maintained the single price point helps it to maintain focus, efficiency and margin control while distinguishing it from discount competitors.
Starboard said its prescription for change could raise Dollar Tree’s stock price to as much as $150 per share. It opened at $96.27 when the letter was published Jan. 7 and was up by more than 5% by mid-day.