We downgraded our recommendation on
Family Dollar Stores Inc.
), the self-service retail discount store chain, to Underperform
with a price target of $59.00. The company currently holds a
Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Estimates for Family Dollar have shown a downtrend since the
company reported soft first-quarter fiscal 2014 results on Jan 9.
The quarterly earnings of 68 cents a share missed the Zacks
Consensus Estimate by a penny and dropped 1.4% from 69 cents
delivered in the prior-year quarter.
The Matthews, NC-based company said that comparable-store
sales fell 2.8% with customer transactions and average consumer
transaction value also declining. Comps faced tough
year-over-year consumables comp comparisons. Further, management
added that comps for December tumbled 3%, given the uneven
economic scenario and tough consumer environment as softness
persists in discretionary categories.
However, a 3.2% increase in revenue to $2,499.7 million
brought the company respite, though it fell short of the Zacks
Consensus Estimate of $2,504 million and also the rate of growth
has decelerated sharply from the prior quarters - 5.8%, 9%, 17.7%
and 12.7% revenue growth witnessed in the fourth, third, second
and first quarters of fiscal 2013.
Going forward, Family Dollar, which competes with
Dollar General Corp.
), does not see much improvement in macroeconomic trends and
consequently lowered its earnings expectations.
Management took a cautious stance while providing guidance for
fiscal 2014. Family Dollar now projects earnings in the band of
85 cents to 95 cents a share for the second quarter and between
$3.25 and $3.55 per share for fiscal 2014. Earlier, the company
had projected earnings in the range of $3.80 to $4.15.
The lower-than-expected results as well as trimmed guidance
triggered a downtrend in the Zacks Consensus Estimates, as
analysts become less constructive on the stock's future
performance. This is evident from the movement witnessed in the
Zacks Consensus Estimate that fell 14.3% to $3.42 for fiscal 2014
and 13% to $3.83 per share for fiscal 2015 in the past 30
Other Stocks That Warrant a Look
Other better-ranked retail stocks that look promising and are
expected to continue with their upbeat performance include
G-III Apparel Group, Ltd.
) sporting a Zacks Rank #1 (Strong Buy) and
Michael Kors Holdings Ltd
) holding a Zacks Rank #2 (Buy).
DOLLAR GENERAL (DG): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
G-III APPAREL (GIII): Free Stock Analysis
MICHAEL KORS (KORS): Free Stock Analysis
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