Family Dollar released the earnings results from its first fiscal quarter before opening bell this morning, posting adjusted earnings of 44 cents per share on $2.56 billion in revenue, a 2.3% increase. Analysts had been expecting earnings of 62 cents per share on $2.57 billion in revenue.

Family Dollar Stores, Inc. Moves Lower On Earnings Miss

Reported earnings were 36 cents or $41.4 million, compared to last year’s 68 cents per share or $78 million. The reported earnings number includes fees related to the pending Dollar Tree merger.

Breaking down Family Dollar’s earnings

Family Dollar reported a 0.4% decline in comparable store sales. Management cited small declines in the value of the average transaction and in the number of transactions.

Net consumables sales rose 3.5% and made up 75.8% of the company’s total net sales. That’s compared to 74.9% in the 2014 fiscal first quarter. Sales of Discretionary items, including apparel and accessories, electronics, seasonal items, and home products, fell 1.3% year over year and made up 24.4% of net sales, compared to 25.1% in the same quarter last year.

The discount chain reported gross profit of $852.9 million or 33.4% of net sales, compared to the previous year’s quarter of $856.8 million or 34.3% of net sales.

Family Dollar’s gross margins still under pressure

Family Dollar said its gross margin continued to be pressured by its pricing investment and strong growth in consumables, which carry lower margins, including tobacco and food products. Management said the current quarter is “off to a solid start,” as December comparable sales rose 1.2% as the discount chain had fewer seasonal promotions compared to the previous year and saw increased traffic in stores.

The company reported $103.5 million in capital expenditures, compared to $112.5 million in the same quarter a year ago. Increased security equipment investments and merchandise fixture expenses partially offset the reduction in new store openings and lower spending on technology.

Family Dollar opened 59 new stores during the quarter, compared to 126 in the same quarter last year. The discount chain also relocated, expanded or renovated 178 stores, compared to 179 stores in the same quarter last year.

Shares of Family Dollar edged downward by nearly 1% in premarket trading after this morning’s earnings report.