Dollar Tree (DLTR) stock surged 7.69% in pre-market trading on Wednesday after the discount retailer announced the sale of its struggling Family Dollar business and reported better-than-expected fourth-quarter earnings.

The company reached an agreement to sell its Family Dollar segment to private equity firms Brigade Capital Management and Macellum Capital Management for $1.007 billion. This move comes after Dollar Tree acquired Family Dollar for about $9 billion in 2015 but has struggled to integrate the business effectively. The sale, expected to close in the second quarter of 2025, will allow Dollar Tree to focus on its core business and potentially improve its overall financial performance.

In addition to the divestiture news, Dollar Tree reported fourth-quarter adjusted earnings of $2.29 per share, beating analysts' expectations of $2.20 per share. The company's revenue from continuing operations came in at $5 billion, while total revenue including Family Dollar was $8.3 billion, slightly above analyst estimates.

"We think this transaction is a significant win for Dollar Tree and DLTR shareholders... the long-term advantages from separation of the business should be substantial," said Scot Ciccarelli, analyst at Truist Securities. The sale of Family Dollar is expected to remove a major overhang on the stock and allow management to focus on driving growth in the core Dollar Tree business.