DLTR Dollar Tree Inc

By Sarah Nassauer And Lisa Beilfuss 

Dollar Tree Inc. swung to a loss in its latest quarter as the discount retailer works to improve a recently acquired rival by cleaning up stores and stocking shelves with more appealing merchandise.

Dollar Tree reported a loss of $98 million for the three months to Aug. 1, from a profit of $121.5 million a year earlier, creating worries that the benefits of its Family Dollar Inc. acquisition may take longer to materialize than expected. After completing its $9 billion purchase of Family Dollar in July, the Chesapeake, Va.-based retailer now operates almost 14,000 stores.

The Family Dollar business "is not broken; we simply need to roll up our sleeves, focus on what's important," Gary Philbin, the executive in charge of the Family Dollar stores, said during a conference call.

Shares of Dollar Tree fell 9.3% Tuesday to $69.20, erasing their year-to-date gain.

Eight weeks into the merger, the company is focused on cleaning and fixing up Family Dollar stores, as well as on operational improvements like better stocking and, in some cases, increasing employee wages, he said.

The acquisition helped boost sales overall by 48% to $3.01 billion. Family Dollar contributed $811.6 million. Sales in stores open at least a year under the Dollar Tree banner rose 2.7%, slightly lower than analysts forecast. Last week, competitor Dollar General Corp. reported existing-stores sales growth of 2.8%.

Dollar Tree forecasts that the combined company will be able to achieve $300 million in annual savings by the third year of the merger, said Dollar Tree Chief Executive Bob Sasser. In the early stages, synergies will come from sourcing and procurement advantages, he said.

Dollar Tree and other discount retailers attracted droves of shoppers during the recession to conveniently located stores selling inexpensive, smaller-size products.

Lower-than-expected same-store sales raise "a slight note of concern" that the improving economy will hurt dollar store retailers because consumers are less primed to buy their products, said Neil Saunders, CEO of Conlumino, a research and consulting firm, in a research note. Conlumino research shows that dollar stores overall are acquiring new customers at a slower pace in recent months.

During the second quarter, all of the retailer's segments and regions increased sales, Mr. Sasser said. Sales of candy, food, party and household supply categories grew fastest, especially in the Southwest, he said.

As a result of the acquisition and integration, Dollar Tree said, it would refrain from providing earnings guidance for the current quarter and pull its per-share profit forecast for the full year. Previously, the company had said it expected to earn an adjusted $3.32 to $3.47 this year.

For the business year ending in January, the retailer expects to report revenue of $15.3 billion to $15.52 billion, based on a low single-digit increase in same-store sales.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

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(END) Dow Jones Newswires

September 01, 2015 17:15 ET (21:15 GMT)

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