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Despite 2.6% profit decline, Dollar Tree delivers in second quarter

Dollar Tree delivered its 26th consecutive quarter of positive comparable store sales growth in the second quarter, but profit declined 2.6% thanks to increased freight costs and investments in higher-value products.

Consolidated comparable store sales increased 4.5% on a constant currency basis. Adjusted for the impact of Canadian currency fluctuations, the comparable store sales increase was 4.4%. Consolidated net sales increased 9.5% to $2.03 billion from $1.85 billion in the prior year’s second quarter.

Gross profit in the quarter increased 7% to $694.1 million from $648.7 million in the prior year’s second quarter.

Net income, compared to the prior year’s second quarter, including acquisition-related costs, decreased approximately $3.2 million to $121.5 million, and diluted earnings per share increased by 5.4% to $0.59. Excluding acquisition-related costs, net income increased approximately $1.4 million to $126.1 million and diluted earnings per share increased 8.9% to $0.61.

“I am very pleased with our second quarter results,” CEO Bob Sasser said. “Expanded assortments of high-value product contributed to our strongest quarterly comparable store sales performance in two years. Pet supplies, hardware, household products, food, electronics and party goods all performed well in the quarter. Our 4.5% comp sales resulted from increases in both customer traffic and average ticket. I am particularly proud of our store associates. Our store teams continue to execute at a high level as the Company delivered its 26th consecutive quarter of positive comparable store sales growth. In challenging macro environments, consumers are increasingly relying on Dollar Tree to be part of the solution in managing their family’s budget. Our stores are well-stocked with incredible values and we are prepared for the fall selling season.”

The company opened 90 stores, expanded or relocated 20 stores and closed 4 stores during the quarter. Retail selling square footage increased to 44.8 million sq. ft., a 6.8% increase compared to the prior year.

Looking ahead, the company estimates sales for the third quarter to range from $2.02 billion to $2.07 billion, based on low- to mid-single digit positive comparable store sales. Diluted earnings per share are estimated to range from $0.61 to $0.66, excluding acquisition-related costs.

Full-year 2014 sales are now estimated to range from $8.44 billion to $8.55 billion. This estimate is based on a range of low- to low-mid-single digit positive comparable store sales. Diluted earnings per share, which includes $0.02 per share of second quarter acquisition-related costs, are expected to range from $2.94 to $3.06, excluding third and fourth quarter acquisition-related costs.

Early this week, Dollar General bid $78.50 for Family Dollar Monday morning in a $9.7 billion deal that exceeds the $74.50 a share Dollar Tree offered for Family Dollar on July 28. The deal would create a small format powerhouse with nearly 20,000 stores in 46 states and sales of more than $28 billion.
 

In a statement released this morning, Family Dollar’s board of directors has unanimously rejected the non-binding proposal made by Dollar General on the basis of antitrust regulatory considerations. The Family Dollar board also unanimously reaffirmed its recommendation in support of the merger agreement with Dollar Tree.
 

“Our board of directors, with the assistance of outside advisors and consultants, has been carefully analyzing the antitrust issues in a potential combination with Dollar General since the beginning of this year, as detailed in the company’s preliminary proxy statement that was filed by Dollar Tree with the SEC on August 11. Our board reviewed, with our advisers, all aspects of Dollar General’s proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed. Accordingly, our board rejects Dollar General’s proposal and reaffirms its support for the pending merger with Dollar Tree,” stated Howard Levine , chairman and CEO of Family Dollar. “I would also like to note that Dollar General’s letter, sent late last night, contained blatant mischaracterizations and did nothing to address the antitrust issues in Dollar General’s proposal.”
 

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