* Don't want to give up on Family Dollar deal yet- CEO
* 2nd-qtr same-store sales up 2.1 pct vs est. 2.9 pct
* Sees FY same-store sales up 3-3.5 pct vs prior view 3-4
* Expects lesser promotional in second half of the year
* Shares rise nearly 2 pct
(Adds graphic, analyst and executive comments, updates shares)
By Sruthi Ramakrishnan
Aug 28 Dollar General Corp reported lower
margins and slower-than-expected growth in quarterly same-store
sales, reinforcing the need for consolidation among
deep-discount retailers as it vies to take over its closest
Chief Executive Rick Dreiling said Dollar General would not
relinquish its pursuit of Family Dollar Stores Inc, even
though the No. 1 U.S. deep-discount retailer's bid was rejected
in favor of a smaller offer from Dollar Tree Inc.
"We truly hope that Family Dollar will come to the table,"
Dreiling said on a post-earnings conference call on Thursday.
Dollar General's shares rose 1.8 percent, Family Dollar's
were marginally higher and Dollar Tree's were up 1 percent.
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 and Target
Corp as well as by Family Dollar and Dollar Tree.
This growing competition among discount chains, always a
popular choice for penny-pinching customers in a struggling
economy, has intensified pressure to merge.
Family Dollar last week rejected a $9 billion buyout offer
from Dollar General that it said could run afoul of competition
law, opting instead for Dollar Tree's earlier $8.5 billion bid.
Goodlettsville, Tennessee-based Dollar General said its
gross margins fell in the second quarter as it offered more
discounts and sold more lower-margin products, such as tobacco.
It was the sixth straight quarter without gross margin growth.
Growth in same-store sales slowed for the third consecutive
quarter, and the company also cut the top end of its full-year
comparable-store sales forecast.
"Dollar General's lackluster results further demonstrate why
Family Dollar is a 'must have' property for the company," BB&T
Capital Markets analyst Anthony Chukumba wrote in a note.
Dreiling said in a statement that the financial benefits of
Dollar General's offer for Family Dollar were "indisputable" and
that any potential antitrust issues raised by the merger of the
two biggest U.S. deep discount retailers were "manageable."
Dollar General has said it would divest 700 stores after it
merged. A combination of the two would have nearly 20,000 stores
in 46 U.S. states; Dollar Tree and Family Dollar combined would
have 13,000 stores in the United States and Canada.
Asked on the call about a "Plan B" should its takeover of
Family Dollar fail to materialize, Dreiling said: "I don't want
to give up on the deal yet."
BETTER SECOND-HALF MARGINS
Dollar General reported same-store sales growth of 2.1
percent for the quarter ended Aug. 1, below the 2.9 percent
estimated by analysts polled by research firm Consensus Metrix.
It said it expected same-store sales to grow 3.0-3.5 percent
in the year ending Jan. 31, versus its previous forecast of
S&P Capital IQ analyst Efraim Levy said the company would
need Family Dollar to accelerate its profit growth. He said
there was a good chance Dollar General would raise its offer,
and raised his rating on the stock to "hold" from "sell".
The company said it was working to increase sales of
non-consumable items, which have higher margins, and was seeing
higher demand for home products and apparel in the $1-$5 range,
as well as for back-to-school items.
"We also see the back half of the year being less
promotional than what we saw in the front half of the year,"
Chief Financial Officer David Tehle said on the call.
For the second quarter, Dollar General's gross margins
shrank 53 basis points to 30.8 percent.
Dollar Tree reported a lower-than-expected second-quarter
profit last week, with its gross margins shrinking by about 80
basis points to 34.2 percent.
Dollar General's shares were up 1.8 percent at $64.87 in
afternoon trading on the New York Stock Exchange. To Wednesday's
close, they had risen almost 11 percent since the offer to buy
(Editing by Savio D'Souza and Saumyadeb Chakrabarty)