With new owners preparing to come on board, Dollar General
The spit-and-polish actions took a huge swipe from earnings, which dropped 66% from the year-ago period. Although same-store sales climbed more than 5.8% and sales rose 3% to $2.6 billion, profits were only $50 million, or $0.16 per share, because of the restructuring charges. Because of all the large markdowns, gross profits contracted 420 basis points.
Dollar General is the largest of the so-called dollar stores, with some 8,000 locations. Unlike 99 Cents Only
It's not surprising that shareholders are loath to cheapen their shares by selling off for less. KKR is willing to buy Dollar General for about 25 times normalized earnings and about 11 times EBITDA (earnings before interest, taxes, depreciation, and amortization). Family Dollar
Undoubtedly, Dollar General is clearing the decks and sprucing up the place in anticipation of KKR taking over. Taking a big bath now will mean the books will be much cleaner for the new owners, so shareholders shouldn't expect any improvements in results or margins in the coming quarters. There is still a lot of inventory that needs to be sold off and several hundred stores that still need to be closed. All will undoubtedly be completed before the third quarter, when the General is demoted to buck private.
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Family Dollar is a Stock Advisor recommendation.