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Dollar Tree merger good for sales, but related costs hammer earnings


Chesapeake, Va. -- Dollar Tree swung to a loss in its second quarter on higher integration costs related to its acquisition of a formal rival. But its revenue skyrocketed as a result of the merger.

On July 6, Dollar Tree completed its $9 billion acquisition of Family Dollar Inc.

“We are now an organization with annual sales exceeding $19 billion, more than 13,800 stores across North America and a network of more than 145,000 associates,” said Bob Sasser, CEO, Dollar Tree. “We remain confident in our ability to deliver $300 million in annual run-rate synergies by the end of the third year post-acquisition.”

Dollar Tree reported a loss of $98 million for the quarter ended Aug. 1, down from a profit of $121.5 million for the year-ago period. Excluding merger-related costs, however, the company posted a profit of 67 cents per share, topping the average analyst estimate by 5 cents.

Revenue rose 48.3% to $3.01 billion, less than expected, with Family Dollar contributing $811.6 million to the top line.

Same-store sales, excluding the contribution from Family Dollar, increased 2.7%, also less than expected. It was Dollar Tree’s 30th consecutive quarter of positive same-store sales.

As a result of the recently completed acquisition and integration initiatives, Dollar Tree said it would refrain from providing earnings guidance for the current quarter and pulled its per-share profit guidance for the full year.

Previously, the company said it expected to earn an adjusted $3.32 to $3.47 this year.

For the business year ending in January, the chain expects to report revenue of $15.3 billion to $15.52 billion, based on a low single-digit increase in same-store sales. Analysts had predicted $15.57 billion in revenue.

During the quarter, the company acquired 8,284 Family Dollar stores, opened 141 stores, expanded or relocated 40 stores, and closed one store. Additionally, as part of its re-banner initiative, the company closed 18 Family Dollar stores, of which four have re-opened as Dollar Tree stores and the other 14 re-opened as Dollar Tree stores following quarter-end.

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