Discount giant Dollar Tree plans to shutter roughly 1,000 underperforming Family Dollar stores, the biggest U.S. store-closing announcement so far this year, as it joins other retailers in seeking to make its portfolio more profitable.

The Chesapeake, Virginia-based chain said it plans to close about 600 Family Dollar stores in the first half of fiscal 2024. It also expects to shut roughly 370 Family Dollar and 30 Dollar Tree stores over the next several years as leases expire.

The Family Dollar shutdowns mark the most significant U.S. retail closing announcement so far this year, according to Coresight Research. It follows in the wake of Macy's last month saying that it planned to close 150 of its underperforming namesake department stores.

There was a flood of store closings announced during the pandemic, outpacing openings, but that trend turned around in recent years. Last year, there were a series of well-publicized retail Chapter 11 filings and liquidations, including those of Bed Bath & Beyond, Buy Buy Baby, Tuesday Morning, and Christmas Tree Shoppes. This year, even with the Family Dollar closings, the number of store openings in the U.S. are still expected to outpace closings, according to Coresight.

Dollar Tree's store cuts took an immediate financial toll on the company. In the company's fiscal fourth quarter that ended Feb. 3, Dollar Tree incurred $594.4 million of charges relating to its store portfolio review. It also recorded a goodwill impairment charge of $1.07 billion and a trade name intangible asset impairment charge of $950 million.

The net sales loss expected from the stores that close this year will be roughly $730 million on an annual basis, according to Rick Dreiling, Dollar Tree chairman and CEO, though part of that will be offset "given their historical underperformance."

In November, Dollar Tree announced it had initiated a comprehensive store portfolio optimization review of Family Dollar to identify underperforming stores for closing, relocation, or re-bannering based on an evaluation of current market conditions and individual store performance.

"As we looked at these stores, it was their location, the competitive environment, the quality of the facility, the proximity to the competition," Dreiling said on the company's fiscal fourth-quarter earnings call Wednesday. "There were many, many, many factors. And, we have had in the past a real estate strategy that wasn't really, really focused on maximizing value. And what we've done now is pick stores [to close] that we don't think have a long-term future. And more importantly, hopefully, we'll be able to transfer some sales from these closed stores into one of our operating stores."

For the quarter, Dollar Tree posted a net loss of $1.71 billion, compared with net income of $452.2 million in the prior-year period. Net sales for the quarter, which included the holiday season, rose about 12%, to $8.63 billion. Same-store sales were up 6.3% for Dollar Tree and down 1.2% for Family Dollar.

Dollar Tree purchased Family Dollar in July 2015 for $9 billion, but the acquisition has been underperforming despite its new parent company's efforts to turn it around.

The just-announced Family Dollar store closings aren't the first round of downsizing at the chain. In 2019, for example, Dollar Tree said it was closing 390 Family Dollar locations, renovating at least 1,000 of the chain's stores, and rebranding another 200 to Dollar Tree banners.

Neil Saunders, managing director of GlobalData, in a note to clients on Wednesday said he supported the Family Dollar closings because a lot of those stores are "in sub-optimal locations where competition is high and growth potential too low." But the decision still means that Family Dollar is "running up the white flag of surrender in the grocery battle," according to Saunders.

"In essence, this means almost 12% of current Family Dollar stores will close over the next three years," he said. "This dramatic cull is the coup de grâce in the rather botched acquisition of the Family Dollar chain, which has caused Dollar Tree nothing but hassle since it was completed back in 2015. Basically, almost 10 years on, Dollar Tree is still sifting through the mess it inherited and has not been able to completely turn around."

In response to Saunders' comments, in an email to CoStar News, a Dollar Tree spokeswoman said: "Family Dollar and Dollar Tree stores are important to thousands of communities across this country. We owe it to those we serve to position all of our stores for success and meet the expectations of our valued customers and associates."

Dollar Tree and its rival Dollar General, which reports its fourth-quarter earnings Thursday, have consistently been on the list of U.S. retailers opening the most stores annually. Now, Dollar Tree is at the top of Coresight's list of 2024 store closings with its latest decision.

The overall planned Family Tree closings essentially double the number of store closings that had previously been announced this year, according to Coresight. That prior closing list was topped by CVS Health with 315 stores; Rite Aid with 165; Foot Locker with 95; Walgreens Boots Alliance with 77, and Macy's with 51 announced store closings. However, the year-to-date number of announced U.S. store openings, which Coresight pegs at 2,370, continues to easily outpace announced closings, even when Family Dollar is factored in.

In 2023, there were more U.S. store openings compared with closures for the second consecutive year, according to Coresight. It tracked 5,645 openings and 4,913 closures.

Despite the Family Dollar closings, Dollar Tree still plans to open more stores this year. The company debuted 219 new stores in the fourth quarter, bringing full-year new store openings to 641, at the high end of the projected 600 to 650 new locations, Dreiling said.

Dollar Tree operated 16,774 stores across 48 states and five Canadian provinces as of Feb. 3, under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada.

Dollar Tree has not publicly identified the Family Dollar stores it will close.

"As it relates to the stores that we are taking action on, from a geography standpoint, there's really no real concentration across the country," Chief Financial Officer Jeff Davis said. "It's pretty much reflective of our overall fleet demographics if you will across the country."

But their operating losses "were pretty substantial," according to Davis.

"While we're starting to mute the level of loss, we were still significantly below what we consider to have a reasonable return, especially when we think about the additional investment that we would want to make in these stores — as it relates to store standards, as it relates to just a number of other things — that it just wouldn't be able to carry a return on the additional investment for these stores," he said.

GlobalData's Saunders agreed with Dollar Tree's take.

"Despite some recent investments in price and attempts to make stores more pleasant places to shop, Family Dollar remains a laggard in the value segment," he said.

Saunders added that Family Dollar's core shoppers "are not particularly loyal and tend to use it out of convenience more than anything else. Over recent years, rates of shopping around have increased; and we believe that they will only increase further in the years ahead as other chains like Walmart, Aldi, and Dollar General continue to expand. Against this backdrop, Family Dollar does not want to invest in markets where it cannot win and is not particularly profitable."