Cautious consumers eat into Dollar General margins

Retailer steps up promotions; Dreiling sticking with Family Dollar bid

Dollar General posted a net second-quarter profit of $251 million, up from $245 million a year ago. Adjusted earnings per share rose 8 percent per diluted share to 83 cents.

Revenues for the quarter came in at $4.72 billion, an increase of 7 percent from last year, as same-store sales climbed 2.1 percent. Operating margins slipped to 9.1 percent from 9.4 percent.

Gross profit margins for the quarter fell about half a point to 30.8 percent in large part because the company was more aggressive with markdowns — especially around Memorial Day and the Fourth of July — to maintain its market share with consumers. Chairman, President and CEO Rick Dreiling said shoppers are generally still very cautious in their spending.

"As we enter the third quarter, we are seeing our sales momentum pick back up and expect that momentum to build as our initiatives gain traction with our customers," Dreiling said.

The back-to-school season has been encouraging, Dreiling told analysts and investors on his team's conference call, with the past two weeks showing a 7 percent sales increase from a year ago in those categories.

On the conference call, Dreiling said his team remains committed to its $9.7 billion bid to buy rival Family Dollar, which is betrothed to Dollar Tree for a smaller amount. Repeating his stance from a week ago, he added that he's willing to share Dollar General's analysis of potential antitrust issues, which the Family Dollar board has flagged as a big road block to seriously considering Dollar General's bid.

At about 2:20 p.m., shares of Dollar General (Ticker: DG) were up about 1 percent to $64.40.