July 10--Family Dollar said Thursday that profits during its most recent quarter fell by a third, news that's unlikely to help the discount retailer fend off an activist investor who wants to see the company sold.
Activist investor Carl Icahn, a longtime corporate brawler, recently demanded the Matthews-based company be put up for sale so new owners can work to improve its results. Icahn owns 9.4 percent of Family Dollar's stock, making him the largest individual shareholder. If he doesn't get his way, Icahn has threatened to take his demands to shareholders and ask them to vote out the company's entire board of directors and replace them.
Family Dollar has lagged its rivals, especially the larger Tennessee-based Dollar General chain, for several quarters. Family Dollar has lower sales-per-square foot, and has struggled to with slumping sales and profits.
Thursday, that trend continued. Family Dollar said profits fell 33 percent compared with the same quarter last year, to $81 million. Sales increased 3.3 percent, to just under $2.7 billion, driven by strong demand for frozen food and tobacco. But sales excluding stores open that recently opened or closed -- considered a key measure of a retailer's health -- fell 1.8 percent, and the company said it saw fewer customer transactions during the quarter.
Family Dollar did not address Icahn or his demands in their earnings release.
"We are executing our previously announced restructuring initiatives to improve our performance," said CEO Howard Levine, in a statement. "Although our sales results remain below our expectations, we are encouraged by the improving trends."
He attributed some of the company's struggles to both the continuing struggles of the company's core low-income customers and an "intense competitive environment."
To increase sales, Family Dollar will expand its frozen and refrigerated food coolers and start stocking beer and wine in its stores next year, the company said.
Last month, Dollar General reported that its quarterly profit inched up less than 1 percent, to $222 million, as sales climbed 6.8 percent, to $4.5 billion.
In an attempt to improve its results this year, Family Dollar has laid off more than 100 people at its Matthews headquarters, changed its strategy to lessen the number of costly promotions, cut prices on 1,000 items and shaken up its executive ranks, including the unexpected departure of former president Mike Bloom.
Family Dollar has also announced plans to close 370 under-performing stores by the end of the fiscal year, including 30 in the Carolinas. During the company's third quarter, however, Family Dollar opened 111 new stores and closed only three.
The company's restructuring plans cost Family Dollar$23 million during the quarter, largely in severance benefit payments.
Although analysts have pointed to Dollar General as a possible candidate to buy Family Dollar, Dollar General's CEO recently announced plans to retire next year. That lowers the chances of a deal, experts say.
Wayne Hood, an analyst with BMO Capital Markets, said in a note to investor Thursday morning that Family Dollar did better than he had expected in some categories. It's same-store sales fell less than forecast. Those results show the company could be improving, and "lessens the likelihood (Family Dollar) will be forced to effect a (merger and acquisition) transaction as quickly."
Still, many analysts consider change of some kind likely, whether it be a merger with another company, a takeover by private equity firms, or the replacement of Levine and other top executives.
Levine, son of Family Dollar founder Leon Levine, owns 8.2 percent of shares outstanding, and hasn't shown any willingness to put his father's company on the market. Family Dollar's board of directors adopted a " poison pill" provision last month that's designed to prevent any unsolicited attempt to take over the company.
About 22 percent of Family Dollar's stock is controlled by activist investors, including Icahn, John Paulson's hedge fund and Nelson Peltz -- who unsuccessfully tried to buy the company in 2011.
The company is one of Charlotte's most prominent homegrown firms, and operates more than 8,200 stores in 46 states. The Levines are also major charitable benefactors, having made tens of millions of dollars worth of contributions to various causes through the Levine Foundation.
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