Family Dollar Q2 Adj. Profit Beats View

(RTTNews) - Discount retailer Family Dollar Stores, Inc. (FDO), which is being acquired by rival Dollar Tree Inc. (DLTR), on Wednesday reported a 16 percent decline in profit for the second quarter from last year, as an increase in sales was offset by higher expenses and flat margins.

Adjusted earnings per share beat analysts' estimates by a penny, while revenue met their expectations. In light of the pending transaction with Dollar Tree, Family Dollar did not provide earnings guidance for fiscal 2015 and said it will not hold a conference call to discuss its second quarter results.

Commenting on the results, Howard Levine, chairman and CEO, said, "Our comparable store sales and customer traffic trends are improving, and we are beginning to see stabilization in key categories. While our trends in late-February were adversely impacted by severe winter weather, our sales trends in March rebounded nicely, reflecting both improved traffic trends and the benefit of an earlier Easter."

Matthews, North Carolina-based Family Dollar's net income for the second quarter declined to $76.71 million or $0.67 per share from $90.87 million or $0.80 per share in the year-ago period.

Excluding fees related to the pending merger with Dollar Tree of $0.07 per share, adjusted earnings per share for the latest quarter were $0.74. On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $0.73 per share for the quarter. Analysts' estimates typically exclude special items.

Total net sales for the quarter grew 3 percent to $2.80 billion from $2.72 billion in the year-ago period. Analysts' consensus was $2.80 billion for the quarter.

Comparable store sales for the quarter increased 0.5 percent, reflecting an increase in the number of customer transactions offset by a decrease in the average customer transaction value. The company noted that comparable store sales for March increased 3.7 percent.

Net sales of consumables for the quarter grew 4.6 percent in the quarter and represented 72.3 percent of total net sales. This compared to 71.1 percent of net sales in the year-ago period.

Meanwhile, net sales of discretionary categories - including apparel and accessories, home products, and seasonal and electronics - declined 1 percent in the quarter to 27.7 percent of net sales.

Gross margin for the quarter edged up to 33.3 percent from 33.2 percent a year ago. The company noted that the benefit of lower markdowns was partially offset by increased sales of lower-margin consumables.

Dollar Tree has offered to acquire Family Dollar for $76 per share or $8.7 billion in cash and stock, while another discount retailer Dollar General Corp. (DG) made an all-cash bid for $80 per share, or $9.1 billion.

But Family Dollar's board has preferred the lower, but more hassle-free offer from Dollar Tree, rather than face the risk of antitrust hurdles that a deal with Dollar General would possibly lead to.

In late January 2015, Family Dollar stockholders adopted the merger agreement with Dollar Tree. The completion of the merger remains subject to clearance by the Federal Trade Commission or FTC.

FDO closed Tuesday's trading at $79.13. In Wednesday's pre-market activity, the stock is down $0.13 or 0.16 percent to $79.00.