(Adds comments from Carl Icahn, updates shares)
By Shailaja Sharma and Sruthi Ramakrishnan
July 10 Discount retailer Family Dollar Stores
Inc, under pressure from activist investor Carl Icahn to
sell itself, said its profit fell by a third as the company
cleared inventory ahead of planned store closures and
Shares of the company, which also reported its third
straight quarterly decline in same-store sales, were up slightly
in late morning trading after falling as much as 2.6 percent.
Icahn, Family Dollar's largest shareholder with a 9.4
percent stake, wants the company to sell itself to rival Dollar
General Corp to help them cope with stiff competition
from big-box retailers such as Wal-Mart Stores Inc.
Icahn's proposal was thrown into doubt last month, however,
after Dollar General said Chief Executive Rick Dreiling had
decided to retire next year.
The billionaire investor told Reuters that Dreiling's
retirement was a "setback" to activist investors who want to
accelerate the merger between Dollar General and Family Dollar.
"We believe Family Dollar and Dollar General should merge as
they would make for perfect partners. It is obvious that Family
Dollar, especially in light of its record and the looming
competition on the horizon, could use a partner," Icahn said.
Dollar stores such as Family Dollar get most of their
business from low-income shoppers, many of whom are struggling
with weak wage growth and a cut in food stamp benefits.
But Family Dollar has underperformed the overall sector,
largely because of its strategy of maintaining relatively high
prices, Edward Jones analyst Brian Yarbrough told Reuters.
Family Dollar said in April it would slash prices on 1,000
basic items, shut 370 underperforming stores and slow its
expansion plans to drive growth. The company said on Thursday it
would start selling beer and wine from next year.
"We think they are going to have to lower prices on
additional items and that's going to weigh on profit margins in
the foreseeable future," Yarbrough said.
The company cut its full-year earnings forecast for the
third time, to $3.07-$3.17 per share from $3.05-$3.25.
Analysts on average expected a profit of $3.15 per share for
the year ending Aug. 30, according to Thomson Reuters I/B/E/S.
Net income for the third quarter fell 33 percent to $81.1
million, or 71 cents per share. Excluding items, earnings
amounted to 85 cents per share.
Net sales rose 3.3 percent to $2.66 billion, slightly above
the average analyst estimate of $2.61 billion. Same-store sales
fell 1.8 percent.
Selling, general and administrative expenses rose nearly 9
percent to $767.04 million, in part due to higher marketing
Family Dollar's shares were down about 0.3 percent at $64.02
in evening trading on the New York Stock Exchange.
(Additional reporting by Devika Krishna Kumar in Bangalore;
Editing by Sriraj Kalluvila and Ted Kerr)