CHICAGO (Reuters) - Dollar General Corp. DG.N named a new president on Wednesday and announced plans to close about 400 underperforming stores and record $138 million of charges as it tries to revive lackluster sales at its discount stores.
Dollar General shares, up 19 percent this month amid takeover speculation, fell more than 5 percent in afternoon trading as investors concluded that the changes dimmed hopes for a leveraged buyout.
David Bere will become president and chief operating officer, effective December 4. Bere, a Dollar General director since 2002, was most recently corporate vice president of Ralcorp Holdings Inc. RAH.N.
Dollar General has been without a president and COO since Lawrence Jackson left in 2004 to work for Wal-Mart Stores Inc. WMT.N, a company spokeswoman said.
Dollar General has lagged behind rivals such as Family Dollar Stores Inc. FDO.N in recent quarters, and analysts have pressed the company to eliminate stockpiles of stale inventory and slow store expansion.
The retailer said its directors had approved a plan on Tuesday to close the underperforming stores next year and clear out excess inventory.
“Dollar General said the right things, but we remain skeptical on execution,” J.P. Morgan analyst Charles Grom wrote in a note to clients. “We think shares of Dollar General will finish lower today as investors hoping for a (leveraged) takeout exit the stock,” he said.
The company said it would change a much-maligned policy of packing away unsold inventory, which analysts said led to a glut of hard-to-sell merchandise and cluttered stores. Instead, it will get rid of inventory through clearance sales and markdowns.
Dollar General expects to record pretax charges of $138 million for the store closings and inventory clean-up, with about $80 million coming in the fiscal third quarter that ended November 3.
The retailer said it would slow down the pace of new store openings, with 300 expected in the coming fiscal year, down from 600 planned for the current year. In fiscal 2008, it plans to open 400 stores, and then 700 the following year.
Dollar General also said its directors approved a $500 million stock repurchase plan.
The stock slipped 92 cents to $15.79 in afternoon New York Stock Exchange trading.
“While today’s announcement is a welcome change, we see no reason to jump into the shares prematurely,” Goldman Sachs analyst Adrianne Shapira wrote in a research note. “We expect results to be severely pressured for at least the next four quarters as fiscal 2007 will be billed as a transition year.”
The shares, down more than 12 percent so far this year, trade at 16.7 times analysts’ profit forecasts for next year. Family Dollar shares are up 12 percent this year and trade at a multiple of 15.3, according to Reuters Estimates.
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