Dollar General Corporation (DG – Analyst Report) reported lower-than-expected third-quarter fiscal 2014 results. Adjusted earnings of 79 cents per share fell a penny short of the Zacks Consensus Estimate but rose 9.7% from the year-ago period.  

Similarly, net sales of this Zacks Rank #2 (Buy) stock increased 7.8% to $4,724.4 million but came below the Zacks Consensus Estimate of $4,758 million. However, the company stated that it remains “committed” to buy Family Dollar Stores Inc. (FDO – Analyst Report).

Sales in the Consumables category jumped 8.4% to $3,645 million; the Seasonal category witnessed a 3.7% rise in sales to $524.6 million, while Home products sales increased 8% to $298.9 million. Sales in the Apparel category grew 8.2% to $255.9 million. Consumables category sales continue to improve, primarily buoyed by strong sales of tobacco products, perishables, and candy and snacks.

Consistently increasing traffic and average transaction value led to 2.8% growth in comparable-store sales.

Gross profit increased 7.2% to $1,423.7 million, while gross margin contracted 18 basis points to 30.1% due to higher sales of low margin products like consumables. Higher markdowns also hampered margins. Operating profit grew a mere 1% to $394.1 million; however, operating margin fell about 57 basis points to 8.3%.

Facing stiff competition from Wal-Mart Stores Inc. (WMT – Analyst Report) and Target Corp. (TGT – Analyst Report), Dollar General has been offering compelling prices in order to retain its customer base, which has resulted in decreasing margins. With increasing competition, consolidation is now the demand of time in the race of the survival of the fittest.

After Family Dollar rejected Dollar General's $9.7 billion bid citing difficulties to overcome antitrust regulatory concerns, the latter took its bid directly to the shareholders. The company will update on the development before the Family Dollar shareholders' meeting which is on Dec 23, 2014.

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