Family Dollar Q1 Profit Down 47%, Results Miss View

(RTTNews) - Discount retailer Family Dollar Stores, Inc. (FDO), which is being acquired by rival Dollar Tree Inc. (DLTR), on Thursday reported a 47 percent decline in profit for the first quarter from last year, as an increase in sales was offset by lower margins and higher expenses. Both revenue and adjusted earnings per share for the quarter missed analysts' estimates.

Howard Levine, chairman and CEO, noted that ongoing topline challenges and continued margin pressures impacted the company's net profitability.

Matthews, North Carolina-based Family Dollar's net income for the first quarter declined to $41.38 million or $0.36 per share from $78.03 million or $0.68 per share in the year-ago period.

Excluding the impact of fees related to the pending merger with Dollar Tree of $0.08 per share, adjusted earnings per share for the latest quarter were $0.44. On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $0.62 per share for the quarter. Analysts' estimates typically exclude special items.

Total net sales for the quarter grew 2 percent to $2.56 billion from $2.50 billion in the year-ago period. Analysts' consensus was $2.57 billion for the quarter.

Comparable store sales for the quarter decreased 0.4 percent, reflecting slight decreases in both the average customer transaction value and the number of customer transactions.

However, comparable store sales in December increased 1.2 percent, with fewer in-season promotional markdowns than last year and growth in customer traffic.

Net sales of consumables for the quarter grew 4 percent in the quarter and represented 75.8 percent of total net sales.

Meanwhile, net sales of discretionary categories - including apparel and accessories, home products, and seasonal and electronics - declined 1 percent in the quarter to 24.2 percent of net sales.

Gross margin for the quarter declined to 33.4 percent from 34.3 percent a year ago. The company noted that the impact of lower markups and stronger sales of lower-margin consumables, including food and tobacco, was partially offset by lower markdowns.

Levine said, "As we look to the rest of fiscal 2015, we are focused on driving more profitable sales growth, and the second quarter is off to a solid start. Comparable store sales in December increased 1.2%, with fewer in-season promotional markdowns than last year and growth in customer traffic."

Dollar Tree has offered to acquire Family Dollar for $76 per share, or $8.5 billion in cash and stock, while another discount retailer Dollar General Corp. (DG) has made an all-cash bid for $80 per share, or $9.1 billion.

But Family Dollar's board has preferred the smaller offer from Dollar Tree, saying they are less concerned about regulatory scrutiny that could derail the deal.

In late December, Family Dollar said that a special meeting of its shareholders to vote on the proposed merger with Dollar Tree has been adjourned to January 22. Following the news, Dollar General has extended its tender offer to acquire all the outstanding shares of Family Dollar for $80.00 per share until January 30.

FDO closed Wednesday's trading at $78.86. In Thursday's pre-market activity, the stock is down $0.45 or 0.57 percent to $78.36.