Family Dollar share price down, profit halves ahead of shareholder vote

Discount retailer Family Dollar Stores Inc announced a nearly 50% decline in earnings for the recent quarter, weeks before a shareholders vote on a takeover deal.

Net income dropped to $41.4 million in the first quarter of financial 2015, compared to the $78 million reported a year ago. Earnings per share stood at $0.36 in the three months ended November 29 versus $0.66 in 2014.

Family Dollar said same-store sales fell 0.4%, citing slight decreases in both average customer transaction value and the number of transactions. However, Family Dollar scored a 1.2% increase in comparable sales in December.

Net sales climbed 2.3% to $2.56 billion during the 13-week period, while gross margin worsen from 34.3% a year earlier to 33.4%.

As the company switches strategies, gross margin has been pressured by pricing investments and a robust growth of lower-margin consumable categories, including food and tobacco.

“As expected, the first quarter of fiscal 2015 was very challenging, as we continued our transition from a very promotional merchandising strategy to a more everyday low price strategy,” said CEO Howard Levine.

Family Dollar has been in the middle of bid battle between Dollar Tree and market leader Dollar General for ownership of their smaller rivals 8 100 stores.

The saga began in July, when Family Dollar unveiled it had agreed to be bought by Dollar Tree in a $74.50 per-share deal. However, Dollar General quickly made a better offer, as it sought to defend its place as the biggest US discount retailer and fend off increasing competition from companies like Wal-Mart and Amazon.

Family Dollar rejected Dollar Generals $80 per-share all-cash deal saying that is it unlikely that the agreement would get an approval from the US Federal Trade Commission.

But Dollar General did not give up and presented its offer directly to Family Dollars shareholders, who are expected to vote on the deal with Dollar Tree on January 22.

The shareholder vote has already been pushed back twice, as both deals are reviewed by the FTC.

Family Dollar Stores Inc gained 0.24% on Wednesday and closed at $78.86 in New York. On Thursday the stock fell 0.55% to trade at $78.43 at 15:07 GMT, marking a one-year increase of 18.22%. The company is valued at 9.02 billion.

According to the Financial Times, 17 analysts offering 12-month price targets for Family Dollar Stores Inc have a median target of $74.50, with a high estimate of $85.00 and a low estimate of $55.00. The median estimate represents a 5.53% decrease from the last close price.