Dollar Tree to close 390 Family Dollar stores in 2019

AP

Family Dollar.

• Dollar Tree announced Wednesday that it is closing as many as 390 Family Dollar stores in 2019. This follows 85 closings during the fourth quarter of 2018.
• Analysts say Family Dollar has been a drag on Dollar Tree's earnings and "remains the weaker part of the business."

Dollar Tree announced early Wednesday morning during its fourth-quarter earnings results that it will be closing as many as 390 of its Family Dollar stores in 2019 and remodeling 200 locations to become Dollar Tree stores. This follows on from 85 store closings at the chain during the fourth quarter of 2018.

It has been three years since Dollar Tree bought Family Dollar, and analysts say that so far, it's been a disappointing run.

The discount chain, which has more than 8,000 stores in the United States, has pulled down its parent company's earnings over the past few years. In its most recent results, same-store sales at Dollar Tree only were up 3.2%. Family Dollar saw a more modest increase of 1.4%.

Family Dollar "remains the weaker part of the business," Neil Saunders, managing director at GlobalData Retail, said in a note to clients in November.

He continued: "From our data, a high proportion of Family Dollar's shopper base goes there out of necessity rather than because they particularly want to. There is nothing wrong with this position, but it does mean that as financial conditions improve, or people feel they can afford something better, they are more likely to migrate away."

Dollar Tree acquired Family Dollar in 2015, after undergoing a bidding war with Dollar General, its main US rival. Dollar Tree and Dollar General are almost neck-and-neck in terms of store count and annual sales.

Read more: We visited Family Dollar, the store that analysts say is becoming Dollar Tree's biggest problem. Here's what we found.

The bidding war may have distracted Dollar Tree and led them to "gloss over some of the glaring problems at [Family Dollar]," Credit Suisse analysts wrote in June.

"Family Dollar clearly preferred Dollar Tree as the acquirer (since the Family Dollar name was more likely to survive), and Dollar Tree likely wanted to prevent Dollar General from nearly doubling its size overnight," the analysts wrote