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Dollar General says committed to Family Dollar deal

Published 28/08/2014, 12:55
© Reuters A woman walks by the Family Dollar store in Arvada

(Reuters) - Dollar General Corp (N:DG), the No.1 U.S. deep discount retailer, said it remained committed to acquiring rival Family Dollar Stores Inc (N:FDO) and that its offer was both superior and achievable than an offer from Dollar Tree Inc (O:DLTR).

Dollar General shares fell 1 percent in light premarket trading after the company also reported lower-than-expected quarterly sales and comparable-store sales and cut the top end of its full-year comparable-store sales forecast.

Family Dollar last week rejected a $9 billion buyout offer from Dollar General that it said could run foul of competition law, opting instead for a smaller bid from Dollar Tree.

"We continue to believe the potential antitrust issues are manageable and that our transaction as proposed is both superior and achievable," Dollar General Chief Executive Rick Dreiling said in a statement on Thursday.

"The financial benefits of our offer to Family Dollar shareholders are indisputable."

The company reported same-store sales growth of 2.1 percent in second quarter ended Aug. 1. That was lower than the average analyst estimate of an increase of 2.9 percent, according to research firm Consensus Metrix.

"The volatility of the macroeconomic environment continues to pressure the consumer and impact the company's cost of purchasing and delivering merchandise," Dreiling said.

The company said it expects same store sales to grow 3.0-3.5 percent in the year ending January, down from its previous forecast of 3-4 percent.

It maintained its full-year adjusted profit forecast of $3.45-$3.55 per share and sales growth outlook of 8-9 percent.

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Dollar General's gross margins shrank 53 basis points to 30.8 percent in the quarter, hurt by higher sales of lower-margin products such as tobacco and more discounting.

The company has been struggling to shore up margins after it slashed prices to keep its lower-income shopper base from being lured by retail giants Wal-Mart Stores Inc (N:WMT) and Target Corp (N:TGT) as well as by Family Dollar Stores and Dollar Tree.

Dollar General said in June that it expects margins to improve in the second half of the year as it focuses on more profitable products such as accessories and stationery items.

The company's quarterly net income rose 2.4 percent to $251.3 million, or 83 cents per share, matching the average analyst estimate.

Net sales rose 7.5 percent to $4.72 billion, falling short of market estimates of $4.77 billion, according to Thomson Reuters I/B/E/S.

Up to Wednesday's close of $63.70, Dollar General's shares had risen almost 11 percent since it offered to buy Family Dollar last week.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Savio D'Souza)

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