Dollar General margins fall in tough discount market

Thu Aug 28, 2014 2:03pm EDT
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By Sruthi Ramakrishnan

(Reuters) - Dollar General Corp (DG.N: Quote) reported lower margins and slower-than-expected growth in quarterly same-store sales, reinforcing the need for consolidation among deep-discount retailers as it vies to take over its closest rival.

Chief Executive Rick Dreiling said Dollar General would not relinquish its pursuit of Family Dollar Stores Inc FDO.N, even though the No. 1 U.S. deep-discount retailer's bid was rejected in favor of a smaller offer from Dollar Tree Inc (DLTR.O: Quote).

"We truly hope that Family Dollar will come to the table," Dreiling said on a post-earnings conference call on Thursday.

Dollar General's shares rose 1.8 percent, Family Dollar's were marginally higher and Dollar Tree's were up 1 percent.

The company has been struggling to shore up margins after it slashed prices to keep its lower-income shopper base from being lured by retail giants Wal-Mart Stores Inc (WMT.N: Quote) and Target Corp (TGT.N: Quote) as well as by Family Dollar and Dollar Tree.

This growing competition among discount chains, always a popular choice for penny-pinching customers in a struggling economy, has intensified pressure to merge.

Family Dollar last week rejected a $9 billion buyout offer from Dollar General that it said could run afoul of competition law, opting instead for Dollar Tree's earlier $8.5 billion bid.

Goodlettsville, Tennessee-based Dollar General said its gross margins fell in the second quarter as it offered more discounts and sold more lower-margin products, such as tobacco. It was the sixth straight quarter without gross margin growth.   Continued...

A price sign at a Dollar General store in Arvada, Colorado June 2, 2009.  REUTERS/Rick Wilking