Dollar General reaffirms commitment to Family Dollar

Dollar General made the case for the superiority of its Family Dollar takeover bid with the release of second quarter results that revealed consistency as well some deceleration in sales and profit growth.

Sales at the company’s more than 11,500 stores increased 7.5% to slightly more than $4.7 billion due to new store expansions and a same store sales increase of 2.1% driven by growth in customer traffic and average transaction size. During the first half of the year, Dollar General opened 426 new stores and remodeled or relocated 585 others. The second quarter was the 26th consecutive period in which traffic and transaction size metrics have increased, according to Dollar General chairman and CEO Rick Dreiling.

Meanwhile, profits increased 2.4% to $251 million, or 83 cents a share, in line with analysts’ estimates, compared to prior year profits of $245 million, or 75 cents a share.

“Our second quarter same-store sales began very strong with a year over year increase in May of more than 3.5%, however, this growth moderated as we moved through June and July given the competitive environment and a consumer who, although resilient in the face of economic uncertainty, remains cautious with her spending,” Dreiling said.

Sales of consumables continued to outpace sales of non-consumables with the company reporting the most significant growth in categories such as tobacco, perishables, candy and snacks. The company said it also saw solid same-store sales growth was also reported in the home and apparel categories. The competitive environment cited by Dreiling prompted Dollar General to increase promotional activities which caused gross margins to decline 53 basis points to 30.8%. The other source of ongoing margin pressure is the fact that Dollar General continues to derive a larger percentage of its sales from lower margin consumable categories such as tobacco and perishables.

“As we enter the third quarter, we are seeing our sales momentum pick back up and expect that momentum to build as our initiatives gain traction with our customers,” Dreiling said. “For the second half of the year, we are well positioned to serve our customers and provide them with the everyday low pricing they count on from us.”

Dollar General also believes it is well positioned to consummate one of the largest acquisitions the retail industry has seen in years. The company hopes to prevail in its efforts to acquire rival Family Dollar which has already agreed to be acquired by Dollar Tree. The deal has the potential to create a combined company with a massive nationwide footprint of roughly 20,000 locations.

“In regards to our proposal to acquire Family Dollar, we remain firmly committed to the acquisition,” Dreiling said. “The financial benefits of our offer to Family Dollar shareholders are indisputable, and the proposed combination would unlock tremendous value for Dollar General shareholders. We continue to believe the potential antitrust issues are manageable and that our transaction as proposed is both superior and achievable.”

Dollar General has offered to acquire Family Dollar for $78.50 a share in an all cash deal valued at $9.7 billion it contends could secure regulatory approval with the divesture of as many as 700 stores. Its takeover offer came after the boards of Dollar Tree and Family Dollar had already approved a $74.50 per share deal valued at $8.5 billion deal that consisted of $59.60 per share in cash and $14.90 in Dollar Tree shares.

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