The long-running uncertainty over Family Dollar’s future has cost the company employees who have quit their jobs at the company’s headquarters in Matthews, CEO Howard Levine said Thursday.
“There is no question that’s impacted our overall business with this uncertainty out there,” Levine said on a conference call with investors to review the company’s latest quarterly results.
The discount retailer has lost employees as it seeks to sell itself to Virginia-based Dollar Tree while also fending off a hostile bid by Tennessee-based rival Dollar General.
The company now employs approximately 1,300 at its headquarters, down by about 100 from a year ago. It’s unclear how much of that reduction is a result of the takeover battle, or from people retiring or leaving for other reasons.
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Family Dollar shareholders are set to vote on the Dollar Tree deal in two weeks. Family Dollar executives did not discuss the sale during the conference call with investors.
Brian Yarbrough, a retail analyst with Edward Jones, said the company’s defections come at a bad time, as Family Dollar implements a strategy to lure back customers and improve its profitability. Under that plan, Family Dollar last year cut prices on about 1,000 everyday items in an effort to better compete with its rivals.
Yarbrough said Levine needs to retain management to help drive his turnaround plan.
“This isn’t like this is a well-oiled machine and humming along,” Yarbrough said. “This is a business that is in decline and struggling.”
The longer there is uncertainty over the company’s future, “probably the more defections you’re going to have,” Yarbrough said.
The uncertainty also has made it hard for Family Dollar to recruit employees, Levine said. As employees have left, the company has filled positions through promotions, he said.
“And, in addition, sometimes we cry,” he said. “It’s challenging, it’s difficult and, fortunately, we’ve been able to handle it appropriately.”
The company is waiting for its cost-cutting strategy to fully pay off. The quarterly results released Thursday show that the initiative helped boost sales in the quarter ended Nov. 29 but also shrank its profits during the period.
Sales were up 2.3 percent compared with the same quarter a year ago, rising to $2.6 billion. But profit fell 47 percent to $41.4 million, down from $78 million the same quarter a year earlier.
That decline came as the company’s profit margin took a hit from the lower prices as well as consumers buying more food and tobacco – products Family Dollar said generally have lower margins.
In addition to pressure on its margins, Family Dollar is also being affected by economic factors outside its control, Levine said. Unemployment rates for Family Dollar’s core customers are much higher than the national average, he said.
“We’re dealing with a low-income customer, and our customer is still struggling.”
Efraim Levy, an equity analyst with S&P Capital IQ, called the results disappointing. Family Dollar stores open at least a year saw a 0.4 percent decrease in sales as the value of the average customer transaction and the number of transactions both fell.
“Here you cut prices, fewer people came, and those who came spent less than people who came previously,” Levy said.
In positive news, the company’s food business is driving customer traffic and increased as a percentage of total sales, Levine said. Last spring, Family Dollar added approximately 400 new food items to build customer loyalty.
Levine also pointed out that total transactions in the month of December in stores open at least a year rose 2 percent from December 2013. The month of December is not included in the first-quarter results.
Higher expenses also weighed on the company’s results in the quarter. For example, the company spent $8.9 million on merger-related costs during the quarter, compared with no such costs a year ago.
Eyes on shareholder vote
Investors are now watching to see what happens with the shareholder vote.
Last month, Family Dollar adjourned a shareholder meeting before a vote on the sale to Dollar Tree, saying Family Dollar did not have enough support to approve the $8.5 billion cash-and-stock deal.
Federal regulators haven’t said whether they would block Dollar General’s competing bid on antitrust concerns or how many of the combined company’s almost 20,000 stores would have to be sold off to rivals to ensure sufficient competition in such a deal.
In a letter to shareholders last week, Levine reiterated that Virginia-based Dollar Tree has committed to divest “all stores necessary or advisable” to receive Federal Trade Commission approval.
The shareholders meeting is scheduled to resume Jan. 22. Shares of the company fell less than 1 percent Thursday to $78.51.