Family Dollar Deal Achievable, Says Dollar General

Dollar General Corp said it was still committed to buying competitor Family Dollar Stores Inc. and that its overture is superior and can be accomplished, compared with the offer from Dollar Tree Inc.

Dollar General stocks dropped 1% in limited trading before the bell after the firm also announced quarterly sales and comparable-store sales that were below expectations and trimmed its full-year comparable-store sales projections.

Last week Family Dollar declined a $9 billion buyout bid from Dollar General, which it said could contravene competition regulations, preferring a smaller offer from Dollar Tree.

“We continue to believe the potential antitrust issues are manageable and that our transaction as proposed is both superior and achievable. The financial benefits of our offer to Family Dollar shareholders are indisputable,” Dollar General Chief Executive Rick Dreiling is quoted by Reuters as saying on Thursday.

The firm posted second-quarter same-store sales growth of 2.1%. The figure was lower than the increase of 2.9% estimated by analysts, according to research company Consensus Metrix.

The firm said it anticipates same-store sales growth of 3% to 3.5% in the year ending January, down from its prior estimate of 3 to 4%.

Dollar General’s gross margins shed 53 basis points to 30.8% in the quarter, hit by higher sales of lower-margin items like tobacco and more discounts.

The company has been having a hard time improving margins after it cut prices to retain its budget shopper base in the face of competition from retail giants Wal-Mart Stores Inc. and Target Corp.

Dollar General announced in June it anticipates margins will grow in the second half of the year as it lays more emphasis on profitable items.

Its quarterly net income added 2.4% to $251.3 million or 83 cents for every share.

According to the Wall Street Journal, the company reaffirmed its earnings and revenue projections for the year.

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To contact the reporter of this story; Yashu Gola at yashu@forexminute.com