Discontinued Operations |
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| Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations | Discontinued Operations As previously reported, in fiscal 2024 the Company initiated a formal review of strategic alternatives for the Family Dollar business. This strategic alternatives review concluded in the fourth quarter of fiscal 2024 and resulted in the decision to sell the Family Dollar business. Accordingly, the Company determined the assets of the Family Dollar business met the criteria for classification as held for sale. Additionally, the Company determined the ultimate disposal will represent a strategic shift that will have a major effect on our operations and financial results. As such, the results of Family Dollar are presented as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented. The assets and liabilities of Family Dollar have been reflected as assets and liabilities of discontinued operations in the accompanying Consolidated Balance Sheets for all periods presented. On March 25, 2025, the Company entered into a definitive agreement to sell the Family Dollar business to Brigade Capital Management, LP and Macellum Capital Management, LLC, for a purchase consideration of $1,007.0 million, subject to a number of adjustments, including with respect to working capital and net indebtedness. The closing of the transaction is subject to satisfaction of customary closing conditions, including receipt of U.S. antitrust approval. Net proceeds are estimated to total approximately $804.0 million.
Refer to Note 2 under the caption “Assets Held for Sale and Discontinued Operations” for additional details on accounting criteria for held for sale and discontinued operations treatment.
At February 1, 2025, the Family Dollar business included the operations of 7,622 general merchandise retail discount stores and ten distribution centers. The Company plans to convert the Odessa, Texas Family Dollar distribution center to a Dollar Tree distribution center in the second quarter of fiscal 2025. In addition, the Company intends to reassign approximately 330 leases for closed Family Dollar stores to Dollar Tree.
Financial Information of Discontinued Operations
“Income (loss) from discontinued operations, net of tax” in the Consolidated Statements of Operations reflects the after-tax results of the Family Dollar business and does not include any allocation of general corporate overhead expense or interest expense of the Company.
The following table summarizes the results of operations of the Family Dollar business that are being reported as discontinued operations:
Depreciation expense related to discontinued operations was $430.6 million, $418.5 million, and $372.1 million for the years ended February 1, 2025, February 3, 2024, and January 28, 2023, respectively. The Company has ceased depreciating and amortizing its long-lived assets for Family Dollar which primarily includes right-of-use assets and property and equipment.
The following table summarizes the Family Dollar business assets and liabilities classified as discontinued operations in the accompanying Consolidated Balance Sheets:
Assets and liabilities classified as held for sale are required to be recorded at the lower of carrying value or fair value less costs to sell. As of February 1, 2025, we determined that the fair value of the Family Dollar business, including costs to sell was lower than its carrying value and we recorded a $3,438.8 million valuation allowance against the assets held for sale. The fair value of the Family Dollar business was estimated using the expected sale price as negotiated with the third party buyer. The non-cash valuation allowance was recorded within “Loss from classification to held for sale” in the summarized results of operations of discontinued operations for the year ended February 1, 2025.
Capital expenditures related to discontinued operations were $439.4 million, $907.5 million, and $609.8 million for the years ended February 1, 2025, February 3, 2024, and January 28, 2023, respectively.
Impairments
Impairment of Long-Lived Assets
In fiscal 2024, fiscal 2023 and fiscal 2022, we recorded impairment charges related to discontinued operations of $80.2 million, $500.6 million, and $38.7 million, respectively, to write down certain assets. These impairment charges are recorded as a component of “Selling, general and administrative expenses” in the results of discontinued operations above.
The fiscal 2024 impairment charges included $70.0 million of operating lease ROU asset impairment charges and $10.0 million of store asset impairment charges recorded in connection with our annual review of events or changes in circumstances that indicate the carrying amount of store-related asset groups may not be recoverable. As a result of this review, we identified underperforming stores within the Family Dollar business that indicated that the carrying amount of their long-lived assets may not be recoverable.
The fiscal 2023 impairment charges included $343.9 million of operating lease ROU asset impairment charges and $149.2 million of store asset impairment charges recorded in connection with the store portfolio optimization review. This review was announced during the fourth quarter of fiscal 2023 and involved identifying stores for closure, relocation or re-bannering based on an evaluation of current market conditions and individual store performance, among other factors. As a result of the portfolio optimization review, we identified approximately 970 underperforming Family Dollar stores, including approximately 600 stores to be closed in the first half of fiscal 2024, and approximately 370 stores to be closed at the end of each store's current lease term. As of February 1, 2025, we had closed approximately 695 stores identified under the portfolio optimization review.
For the fiscal 2024 and fiscal 2023 impairment charges, we performed an undiscounted cash flow analysis on each individual store’s asset group, and determined that certain store asset groups had net carrying values that exceeded their estimated undiscounted future cash flows. We estimated the fair values of the asset groups based on a discounted cash flow method for each store and recorded an impairment for store asset groups where the fair value was lower than its carrying value. For stores that were to close in the first half of fiscal 2024 pursuant to the portfolio optimization review, we estimated the remaining fair value of the asset groups taking into account our ability to generate sublease income or lease termination benefits prior to the end of the lease term. The significant estimates used in the discounted cash flow methodology, which are based on level 3 inputs, include our expectations for future operations and projected cash flows. The valuation date for estimating the fair value of the long-lived assets at the stores for fiscal 2024 and fiscal 2023 was November 30, 2024 and November 25, 2023, respectively.
In fiscal 2023, we also recorded $80.6 million of inventory markdowns and $5.6 million of capitalized distribution cost impairment within “Cost of sales” in the results of discontinued operations above related to the store portfolio optimization review. The operating lease ROU asset impairment recorded in connection with the store portfolio optimization review in fiscal 2023 did not relieve us of our monthly cash payment obligations under the leases. We continue to pursue lease terminations or subleases where practicable.
Trade Name and Goodwill Impairment
In connection with our annual impairment testing of goodwill and nonamortizing intangible assets during the fourth quarter of fiscal 2024, and as a result of the decisions made around the strategic review, we determined it was more likely than not that an impairment loss had been incurred with respect to the Family Dollar goodwill and trade name, and proceeded to perform a quantitative impairment test of both assets. We estimated, with the assistance of a third party specialist, the fair value of the Family Dollar trade name based on an income approach using the relief-from-royalty method. The significant estimates used in the relief-from-royalty method, which are level 3 inputs, include estimates of future growth and revenue, a company-specific royalty rate, our weighted average cost of capital adjusted by a company-specific risk premium and trade name premium. The valuation date for the Family Dollar trade name was November 30, 2024. The results of the impairment test showed that the carrying value of the Family Dollar trade name exceeded its estimated fair value resulting in the recognition of a $1,400.0 million impairment charge in the fourth quarter of fiscal 2024, which is recorded as a component of “” in the results of discontinued operations above.
Subsequent to the Family Dollar trade name and long-lived asset impairment tests, we estimated the fair value of the Family Dollar reporting unit using the expected sale price for the business as negotiated with potential third party buyers. The valuation date for the Family Dollar reporting unit was November 30, 2024. The annual goodwill impairment evaluation in 2024 showed that the fair value of the Family Dollar reporting unit was lower than its carrying value resulting in the recognition of a $490.5 million impairment charge in the fourth quarter of fiscal 2024.
In the fourth quarter of fiscal 2023, the annual goodwill and nonamortizing intangible asset impairment evaluations resulted in the recognition of a $950.0 million trade name impairment charge and a $1,069.0 million goodwill impairment charge. The impairments were the result of the anticipated store closures under the store portfolio optimization review described previously. The fair value of the trade name was estimated, with the assistance of a third party specialist, based on an income approach using the relief-from-royalty method. The significant estimates used in the relief-from-royalty method, which are level 3 inputs, include estimates of future growth and revenue, a company-specific royalty rate, our weighted average cost of capital adjusted by a company-specific risk premium and trade name premium. The fair value of the Family Dollar reporting unit was estimated, using the assistance of a third party specialist, using a combination of a market multiple method and a discounted cash flow method. The significant estimates used in the discounted cash flow method, which are level 3 inputs, include our weighted average cost of capital adjusted by a company-specific risk premium, long-term rates of growth and profitability for the Family Dollar reporting unit, working capital effects, and changes in market conditions, consumer trends and strategy. The market multiple method utilized comparable public company revenue and profitability multiples to estimate the fair value of the Family Dollar reporting unit. The valuation date for the fiscal 2023 Family Dollar trade name and reporting unit was November 25, 2023.
The annual goodwill and nonamortizing intangible asset impairment evaluations in fiscal 2022 did not result in any impairment charges. We have recorded cumulative goodwill impairment charges totaling $4,599.5 million, all of which relate to the Family Dollar reporting unit and were recorded during the fourth quarters of fiscal 2024 ($490.5 million), fiscal 2023 ($1,069.0 million), fiscal 2019 ($313.0 million), and fiscal 2018 ($2,727.0 million).
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