Dollar General Earnings Still Dominated by Merger

The company revised guidance for the full year to be in the middle of the prior range of $3.45 to $3.55. Consensus estimates call for $3.50 in earnings per share and $18.96 billion in revenue for the full year. The company also has plans to open 730 new stores, and it will look to relocate or remodel an additional 875 stores.

The big question is whether Dollar Tree Inc. (NASDAQ: DLTR) and Family Dollar Stores Inc. (NYSE: FDO) will merge, or if Dollar General will win in its bid to acquire Family Dollar.

For a comparison of size, Dollar General’s expected 2014 total annual revenue is $18.96 billion. That is against $10.85 billion for Family Dollar and against $8.6 billion for Dollar Tree. In short, Dollar General is trying to prevent the other two companies from merging into an equal competitor. The risk if Dollar General wins in its acquisition hope is that it will be exponentially larger than peers in the dollar store and discount space.

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Rick Dreiling, Dollar General’s chairman and CEO, commented on the merger:

We remain committed to acquiring Family Dollar. We expect to provide an update on our offer in time for Family Dollar shareholders to review such information prior to the Family Dollar shareholders’ meeting scheduled for December 23, 2014.

He also said:

Our affordability-focused initiatives continued to gain traction with our customers in the third quarter, and our same-store sales growth of 2.8 percent reflected increases in both customer traffic and average ticket for the 27th consecutive quarter. We continued to grow our market share in consumables, and we are very pleased with the performance of our home and apparel categories. Importantly, we are seeing a significant step up as we start the holiday season, and we expect to achieve same-store sales growth of approximately 5 percent for the fourth quarter.

The Dollar General chart has been of little help in analysis because shares are within $1 of all-time highs. Still, at $67 or so currently, this $66 to $67 level has acted as resistance in the past few days. The prior resistance level had been $64 or so, but that was in August and September.

Shares of Dollar General closed Wednesday down less than 1% at $66.69. Following the release of the earnings report, the initial response in the premarket was negative and shares were down less than 1% at $66.30.

The consensus analyst price target for shares is $71.94, and the 52-week trading range is $53.00 to $67.95. Dollar General has a market cap of $20 billion.

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