Bearish View on Family Dollar - Analyst Blog

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We downgraded our recommendation on Family Dollar Stores Inc. ( FDO ), 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. ( DG ), 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 days.

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. ( GIII ) sporting a Zacks Rank #1 (Strong Buy) and Michael Kors Holdings Ltd ( KORS ) holding a Zacks Rank #2 (Buy).



DOLLAR GENERAL (DG): Free Stock Analysis Report

FAMILY DOLLAR (FDO): Free Stock Analysis Report

G-III APPAREL (GIII): Free Stock Analysis Report

MICHAEL KORS (KORS): Free Stock Analysis Report

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Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DG , FDO , GIII , KORS

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