Family Dollar Stores Inc.
), the operator of self-service retail discount store chains and an
S&P 500 company, is slated to report its fourth-quarter 2012
financial results on October 3, 2012.
The current Zacks Consensus Estimate for the quarter is 75 cents
a share, which reflects a growth of 13.6% from the prior-year
quarter's earnings. The estimates in the current Zacks Consensus
range between a low of 70 cents and a high of 78 cents a share. The
Zacks Consensus estimates revenue at $2,367 million for the
The current Zacks Consensus Estimate for fiscal 2012 is $3.64
per share. Further, analysts polled by Zacks expect full year
revenue to be $9,334 million.
Recap of Third-Quarter 2012
Family Dollar's quarterly earnings of $1.06 per share came in
line with the Zacks Consensus Estimate but jumped 16.5% from 91
cents earned in the prior-year quarter on the heels of healthy
sales witnessed in the Consumables, and Seasonal and Electronics
categories, and marked a 17
successive quarter of double-digit growth.
The company posted a 9.6% increase in revenue to $2,360 million
from the prior-year quarter, and reflected sales growth across
Consumables (up 12.2%), Seasonal and Electronics (up 15.4%) and
Apparel and Accessories (up 1.1%), partially offset by Home
Products (down 1.8%). However, total revenue fell short of the
Zacks Consensus Estimate of $2,373 million.
Based in Matthews, North Carolina, Family Dollar at its last
conference call hinted that it expects earnings between 71 cents
and 81 cents for the fourth quarter and in the range of $3.60 to
$3.70 per share for fiscal 2012.
Zacks Agreement & Magnitude
No movement was noticed in the Zacks Consensus Estimate for the
fourth quarter of 2012, since the upward revision in estimate made
by 1 out of 21 analysts covering the stock in the last 7 and 30
days, did not have a material impact.
For fiscal 2012, the Zacks Consensus Estimate remains stable
despite increase in estimate made by 1 analyst in the last 30 days.
In the last 7 days, 1 analyst raised the estimate and another
analyst lowered the same, thereby keeping the Zacks Consensus
Mixed Earnings Surprise History
With respect to earnings surprises, Family Dollar has met as
well as topped the Zacks Consensus Estimate over the last four
quarters in the range of 0.0% to 3.1%. The average remained at 2.5%
suggesting that Family Dollar has outperformed the Zacks Consensus
Estimate by the same magnitude in the trailing four quarters.
Family Dollar's earnings met the Zacks Consensus Estimate in the
first and third quarters of 2012. It topped the Estimate in the
second quarter of 2012 by 1.8% and in the fourth quarter of 2011 by
Family Dollar in Neutral Lane
The economic recovery is still unstable, and bargain hunters
have no choice but to go from one shop to another to grab the best
deal, with their principal focus on essential items, such as food.
Family Dollar with its low cost options remains successful in
luring budget-constrained consumers amidst the fragile economic
recovery. However, margins remain under pressure.
Family Dollar offers general merchandise in four categories --
consumables, home products, apparel and accessories, and seasonal
and electronics -- and sells merchandise at prices from under $1 to
The company's strategic initiatives to improve merchandising,
marketing and store operations have resulted in sustained growth in
the top and bottom lines. For fiscal 2012, management expects
growth of 9% to 10% in net sales and 15.4% to 18.6%in earnings per
The company remains committed towards better price management,
cost containment efforts, effective inventory management, private
label offering and expanded operating hours that should augur well
for sales. Moreover, in order to enhance its market share, Family
Dollar intends to focus on both consumables and discretionary
Family Dollar registered growth in the top and bottom lines, but
it was unsuccessful in eliminating the concerns regarding
increasing gross margin pressure. It was apparent that the growth
in the top line was backed by the lower-margin consumables
category. Consequently, the increase in sales of lower margin
merchandises weighed upon the company's gross margin that
contracted 40 basis points to 35.8%. Operating margin shriveled 20
basis points to 8.4%.
It is obvious that given a dismal economy, consumers will focus
on basic necessities such as food, which generally carry a lower
margin. Management expects margins to remain under pressure in the
fourth quarter and in the beginning of fiscal 2013.
Family Dollar operates in the highly competitive discount retail
merchandise sector. Peer pressure from the likes of
Wal-Mart Stores Inc.
Dollar General Corporation
), will likely continue to weigh on its results.
Currently, we maintain our long-term 'Neutral' recommendation on
the stock. Moreover, Family Dollar shares maintain a Zacks #3 Rank
that translates into a short-term 'Hold' rating.
DOLLAR GENERAL (DG): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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