Dollar General, the leading U.S. deep discount retailer, said Thursday it remains committed to acquiring rival Family Dollar, and reported a 2% increase in fiscal second-quarter profit.
The discount chain increased markdowns in a move to get cautious customers to open up their wallets in the quarter.
“Our second quarter same-store sales began very strong with a year over year increase in May of more than 3.5%,” said Dollar General Chief Executive Rick Dreiling. “However, this growth moderated as we moved through June and July given the competitive environment and a consumer who, although resilient in the face of economic uncertainty, remains cautious.”
Dollar General’s gross profit slipped to 30.8% from 31.3% a year ago, hurt by the increased promotional efforts.
The results are the first from Dollar General DG 1.44% since it offered to pay $9.7 billion to acquire rival Family Dollar FDO 0.08% — a bid that is higher than the amount competitor Dollar Tree DLTR 0.58% had offered. Dollar General’s bid was rebuffed by Family Dollar, which cited antitrust concerns, though Dollar General said it is still motivated to complete the deal.
A potential merger between two of the largest discount-focused retail chains comes at a time when many low- and middle-income customers have been stung by flat wages, higher payroll taxes and a slowly improving labor market. Those challenges have led the three major discount chains to report softer same-store sales growth recently.
Those challenges hurt Dollar General in the past few months. Same-store sales grew 2.1% for the quarter ended Aug. 1, under the 2.9% growth projected by Consensus Metrix. Overall net sales increased 7.5% to $4.72 billion, while per-share earnings climbed to 83 cents from 75 cents. Analysts surveyed by Bloomberg had expected $4.77 billion in sales on an 83-cent profit.
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