Dollar Tree 2nd-quarter profit falls 2 percent amid planned acquisition of Family Dollar

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    RICHMOND, Virginia — Dollar Tree Inc. said Thursday its second-quarter profit fell more than 2 percent on costs related to its planned acquisition of rival discounter Family Dollar even though shoppers spent more at its discount stores.

    Dollar Tree reported earnings of $121.5 million, or 59 cents per share for the period ended Aug. 2, compared with $124.7 million, or 56 cents per share, in the year-ago quarter.

    Excluding costs related to the buyout of Family Dollar Stores Inc., Dollar Tree said it earned 61 cents per share. Analysts surveyed by Zacks Investment Research expected earnings of 65 cents per share.

    The Chesapeake, Virginia-based company, which operates more than 5,165 stores in the U.S. and Canada, saw revenue increase 9.5 percent to $2.03 billion, topping Wall Street expectations of $2.01 billion.

    Its shares fell 88 cents to $54.12 in morning trading Thursday.

    Sales at established stores rose 4.5 percent. That comparison is a key gauge of a retailer's health. It excludes the volatility associated with stores that recently opened or closed.

    The top-performing categories during the quarter included pet supplies, hardware, household products, food, electronics and party goods, the company said.

    Last month, Dollar Tree announced plans to buy Family Dollar for $8.5 billion, significantly broadening its reach as it looks to fend off Wal-Mart, which has been stepping up its courtship of lower-income customers.

    The deal would make Dollar Tree the biggest player in the dollar store segment, with its more than 13,000 combined locations eclipsing current leader Dollar General, which has about 11,300.

    But in an attempt to trump Dollar Tree, Dollar General Corp. this week offered approximately $8.95 billion for Family Dollar — an offer that was rebuffed Thursday, citing antitrust issues. In a statement, Family Dollar CEO Howard Levine said that its board and advisers reviewed Dollar General's offer and determined it wasn't likely to be completed on the terms proposed.

    Dollar General CEO Rick Dreiling had questioned Levine's motives in a letter sent to its board late Wednesday, saying Levine's desire to head the combined companies weighed into the company's decision to pursue an agreement with Dollar Tree.

    In a conference call with investors, Dollar Tree CEO Bob Sasser said he believes the company's offer to Family Dollar shareholders is "compelling, immediate and certain value for their investment" but declined to comment further on the acquisition and the recent developments.

    The now seemingly ended bidding war comes as the chains look for ways to grow sales and market share at a time when their core low-income customers remain financially stretched during the economic recovery.

    Dollar stores grew during the recession as people across income groups searched for cheaper options. To attract a broader array of customers, they also expanded their offerings to include more groceries and brand-name products, instead of just the party favors and other knickknacks people often associated with them.

    More recently, however, sales at dollar stores have been suffering because the lower-income customers who go to them are facing persistent job instability and slow wage growth in the aftermath of the recession. Wal-Mart Stores Inc. and Kroger Co. also have been opening smaller store formats to directly compete with dollar stores.


    AP Business Writer Michelle Chapman in New York contributed to this report.


    Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum

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