Family Dollar's Profit Falls

Family Dollar Stores Inc.'s third-quarter profit fell as the company reported higher costs ahead of its planned merger with Dollar Tree Inc.

The discount retailer, which hasn't offered financial projections citing the pending merger, has agreed to sell 330 stores to new York private-equity firm Sycamore Partners to address regulatory concerns. Final approval by the Federal Trade Commission is pending.

Family Dollar hasn't paid cash dividends during the second and third quarters under the terms of the Dollar Tree merger agreement.

The combined company, which would bring together the No. 2 and No. 3 companies in the dollar-store category, would create the largest company in the sector with more than 13,000 stores that would continue to operate under both brands.

Dollar Tree sells products for $1 or less and focuses on suburban markets, while Family Dollar sells more branded consumer products like detergent and groceries and focuses on urban and rural markets.

Overall, Family Dollar reported a profit of $79.9 million, or 70 cents a share, for the 13 weeks ended May 30, down from $81.1 million, or 71 cents a share, a year earlier. Excluding restructuring- and merger-related charges, the company's profit was 74 cents a share, compared with 85 cents a year earlier.

Net sales rose 2.60% to $2.73 billion.

Analysts surveyed by Thomson Reuters projected 82 cents a share on slightly higher net sales than the company reported.

Sales at stores open for at least 13 months rose 0.7% as the company reported higher customer transactions though the average transaction value fell.

Gross margin improved to 34.6% from 34.3% a year earlier.

Inventory, meanwhile, rose 2.5% to $1.63 billion.

Shares, largely flat in late trading, closed Wednesday at $79.18, down slightly for the year.

Write to Maria Armental at [e-mail]

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