By Chelsey Dulaney
Family Dollar Stores Inc. logged its strongest growth in sales
at stores open at least 13 months since 2013 during its February
quarter, as the discount retailer begins to see improvements in
customer traffic.
The company's overall sales and profit met Wall Street
expectations for the fiscal second-quarter on Wednesday, despite
severe winter weather at the end of February and lower customer
spending on average.
Family Dollar declined to offer guidance for the year, citing
its impending deal to be bought by Dollar Tree Inc., but said its
same-store sales grew a strong 3.7% in March.
"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," said Family Dollar Chief Executive Howard R.
Levine in a release.
Shares of Family Dollar were up 0.5% in morning trading, while
Dollar Tree shares gained 1.6%.
The results come as the companies near regulatory approval for
their merger, valued at nearly $9 billion.
On Tuesday, Dollar Tree said the Federal Trade Commission has
substantially completed its review of the acquisition and
identified about 340 stores for divestiture. Dollar Tree intends to
close the merger in May but said the timing is subject to certain
factors beyond its control, including FTC approval.
After the merger, Dollar Tree will have about 13,000 stores and
$19 billion in revenue and will likely overtake Dollar General
Corp. as the biggest dollar chain in the U.S. Dollar General, which
has 11,789 stores and posted $18.9 billion in revenue in 2014, had
also pursued a deal with Family Dollar, offering about $9 billion
in cash for the retailer, but was rebuffed by the company over
antitrust concerns.
The consolidation comes as consumers remain price-conscious amid
uneven economic recovery, forcing discount retailers to squeeze
more costs out of their operations to keep prices low.
Family Dollar, for its part, has moved away from a promotional
model to a strategy that depends on everyday lower prices. The
strategy has squeezed margins, though the company said it is now
seeing key categories stabilize and customer traffic trends
improve.
In the latest quarter, margins edged up to 33.3% from 33.2% a
year earlier, as the benefit of lower markdowns was offset by
increased sales of lower-margin consumables.
Same-store sales grew 0.5% as an increase in the number of
customer transactions was offset by a decrease in transaction
value. Consensus Metrix had forecast 1.8% growth in the metric.
Overall, for the quarter ended Feb. 28, Family Dollar posted a
profit of $76.7 million, or 67 cents a share, down from $90.9
million, or 80 cents a share, a year earlier. Excluding merger fees
and other special items, earnings were 74 cents a share.
Net sales grew 3% to $2.8 billion.
Analysts projected earnings of 73 cents a share and revenue of
$2.8 billion.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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