Dollar General remains committed to buying Family Dollar

Goodlettsville, Tenn. -- Dollar General Corp. on Thursday reported earnings of $251.3 million for the second quarter, in line with expectations, even as its sales decelerated. The company also said it still wants to buy Family Dollar Stores, even though the rival discounter rejected Dollar General’s bid of its $8.95 billion offer last week.

"We remain firmly committed to the acquisition," Dollar General CEO Rick Dreiling said in a statement on Thursday. “The financial benefits of our offer to Family Dollar shareholders are indisputable, and the proposed combination would unlock tremendous value for Dollar General shareholders.”

Family Dollar accepted a slightly smaller one from rival Dollar Tree Inc. for about $8.5 billion, saying the bid by Dollar General would face roadblocks from antitrust regulators. Dreiling has dismissed those concerns, and the chain has said it could secure regulatory approval with the divesture of as many as 700 stores.

“We continue to believe the potential antitrust issues are manageable and that our transaction as proposed is both superior and achievable," Dreiling said.

A deal between Dollar General and Family Dollar would create a combined company with a nationwide footprint of some 20,000 locations.

Dollar General’s revenue in the quarter, ended Aug. 1, rose 7.5% to $4.72 billion in the second quarter, missing Street forecasts of $4.76 billion. The retailer cited a competitive environment and consumers who remain cautious in their spending.

Same-store sales increased 2.1%, with increases in both customer traffic and average transaction value.

“Dollar General’s second quarter sales trends improved over the first quarter as we grew both customer traffic and average ticket for the 26th consecutive quarter,” said Dreiling.

Sales of consumables continued to outpace sales of non-consumables with 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.”

 

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