Family Dollar Stores Inc.
), the operator of self-service retail discount store chains,
recently posted second-quarter 2012 results. Street analysts had
enough time to ponder over the company's scores. In the paragraphs
that follow, we cover the recent earnings announcement, subsequent
estimate revisions by analysts as well as the Zacks Rank and
long-term recommendation for the stock.
Last Quarter Synopsis
Based in Matthews, North Carolina, Family Dollar unveiled its
second quarter financial results on March 28, 2012. The quarterly
earnings of $1.15 per share beat the Zacks Consensus Estimate by a
couple of cents, and jumped 17.3% from 98 cents earned in the
prior-year quarter on the heels of healthy sales witnessed in the
Consumables, and Seasonal and Electronics categories.
Family Dollar posted an 8.6% increase in revenue to $2,458.6
million from the prior-year quarter, reflecting sales growth across
Consumables (up 12.9%) and Seasonal and Electronics (up 9.4%),
offset by Apparel and Accessories (down 5.9%) and Home Products
(down 0.5%). However, total revenue fell short of the Zacks
Consensus Estimate of $2,461 million.
The company hinted that comparable-stores sales are on the rise
due to improved traffic count and an increase in average consumer
transaction values. Comps jumped to 4.5% in the quarter compared
with a growth of 5.1% in the prior-year quarter.
Strolling Through Guidance
Family Dollar now expects earnings between $1.01 and $1.11 for
the third quarter and in the range of $3.55 to $3.75 per share for
Management predicts third quarter comps to rise between 5% and
7%, and fiscal 2012 comps to climb between 5% and 6%. Family
Dollar, which faces stiff competition from
Wal-Mart Stores Inc.
), expects fiscal 2012 net sales to jump by 9% to 10%.
(Read our full coverage on this earnings report:
Family Dollar Beats Estimate
Agreement of Estimate Revisions
The agreement of estimate revisions indicates that the majority
of analysts were unidirectional following Family Dollar's
first-quarter 2012 results.
In the last 30 days, 9 out of 21 analysts covering the stock
raised their estimates, whereas 4 analysts lowered the same for the
third quarter of 2012. For the fourth quarter, 10 analysts made
upward revisions, whereas 4 analysts trimmed their estimates.
For fiscal 2012, 17 analysts revised their estimates upward,
with only 1 analyst revising the same downward in the last 30 days.
For fiscal 2013, 14 analysts increased their estimates and only 2
analysts made downward revisions.
What Drives Estimate Revision
Clearly, a positive sentiment is palpable among most of the
analysts, who remain optimistic on Family Dollar's performance.
Following the earnings release, the Zacks Consensus Estimate has
been portraying an upward trend with the majority of analysts
remaining bullish on the stock.
The better-than-expected bottom-line results and upbeat earnings
guidance impressed the analysts, who went on to revise their
estimates to better align with management's guidance range. Going
forward, analysts remain confident about the company's commitment
towards better price management, cost containment efforts,
effective inventory management, private label offering, store
expansion and renovation, and merchandise initiatives.
Family Dollar did register growth in the top and bottom lines,
but the increments were not enough to alleviate the concern about
increasing gross margin pressure. This kept some of the analysts on
the back foot. It was apparent that the growth in the top line was
led by the lower-margin consumables category. Consequently, the
increase in sales of lower margin merchandises weighed upon the
company's gross margin that contracted 80 basis points to
It is obvious that given a dismal economy, consumers will focus
on basic necessities only, such as food that generally carries
lower margin. Management expects gross margin to remain under
pressure for the year.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly
reflected through changes in the Zacks Consensus
The Zacks Consensus Estimate for the third quarter of 2012 has
remained constant at $1.06 in the last 30 days, as the revisions
made by the analysts has a neutral impact on the Zacks Consensus.
The Zacks Consensus Estimate for the fourth quarter moved up by a
couple of cents to 77 cents, in the last 30 days.
For fiscal 2012, the Zacks Consensus Estimates jumped 4 cents to
$3.66 in the last 30 days. For fiscal 2013, the Zacks Consensus
Estimates increased 4 cents to $4.22.
The economy is still not out of the woods, and consumers will
remain cautious on their spending, buying only those things that
fulfill their basic needs. Consequently, we could see more
competitive pricing and new products to attract shoppers. A trigger
in price war will definitely eat away margins, which in turn will
affect the company's results. In order to remain competitive, it is
better to try out innovative ways to win the hearts of target
consumers rather than fading away in an unhealthy contest.
Currently, we maintain our long-term 'Neutral' recommendation on
the stock. However, Family Dollar shares maintain a Zacks #2 Rank
that translates into a short-term 'Buy' rating.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
DOLLAR GENERAL (
): Free Stock Analysis Report
FAMILY DOLLAR (
): Free Stock Analysis Report
WAL-MART STORES (
): Free Stock Analysis Report
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