Family Dollar Stores Inc.
), the operator of self-service retail discount store chains,
posted third-quarter fiscal 2013 earnings of $1.05 per share that
beat the Zacks Consensus Estimate by a couple of cents but fell
by a penny from the prior-year quarter. The earnings however,
came near the higher-end of the previously provided guidance
range of 98 cents to $1.08 per share.
Consumables category was the driving factor behind the
better-than-expected results but the discretionary sales remain a
drag in the quarter. Further, management hinted that
discretionary sales would remain under pressure as the customers
remain cautious on account of higher payroll taxes and soft job
market. Moreover, this Zacks Rank #4 (Sell) stock also narrowed
its earnings outlook.
Let's Dig Further
Family Dollar posted a 9% increase in revenue to $2,573.5
million from the prior-year quarter, and reflected sales growth
across Consumables (up 14.8%), partially offset by Apparel and
Accessories (down 8.9%), Home Products (down 2.1%) and Seasonal
& Electronics (down 0.5%). However, total revenue fell short
of the Zacks Consensus Estimate of $2,601 million.
The strength witnessed in the Consumables category came on the
back of robust growth across tobacco, food, and health and beauty
The company's point-of-sale technology and store realignment
initiatives better position it to drive traffic, meet
customer-oriented demand and improve in-store shopping
experience. Consumers with lower disposable incomes are now
prioritizing their purchases and looking for low-priced
Based in Matthews, North Carolina, Family Dollar hinted that
comparable-stores sales are on the rise on improved traffic count
and increase in average consumer transaction value. Deeper focus
on consumables helped Family Dollar to drive business from
budget-constrained consumers. Comps jumped 2.9% in the quarter
compared with a growth of 5% in the prior-year quarter.
The sales in the quarter were driven by the lower-margin
Consumables category, which now accounts for 72.5% of
third-quarter fiscal 2013 sales compared with 68.9% in the
prior-year quarter. Consequently, the increase in sales of lower
margin merchandises weighed upon the company's gross margin that
contracted approximately 110 basis points to 34.7% during the
quarter under review. Higher inventory shrinkage and increased
markdowns also hurt the margins. For fiscal 2013, management
expects gross margin to remain under pressure.
The economic recovery is still patchy, and bargain hunters are
going from one shop to another to grab the best deal, with their
primary focus being on consumables.
Other Financial Details
Family Dollar ended the quarter with cash and cash equivalents
of $123.5 million, total long-term debt of $516.4 million,
reflecting a total debt-to-capitalization ratio of 25.3%, and
shareholders' equity of $1,521.1 million. Capital expenditures
for the first-nine months of fiscal 2013 were $599.7 million.
Management anticipates capital expenditures between $750 and $800
million for fiscal 2013.
During the quarter, Family Dollar opened 129 new outlets and
closed 3 locations taking the total store count to 7,801. The
company also renovated, expanded, or relocated 228 stores.
Through fiscal 2013, the retailer plans to open about 500 new
stores and close 30 to 50 stores.
Strolling Through Guidance
Management now expects earnings in the band of 82 cents to 87
cents a share for the fourth quarter of fiscal 2013. For fiscal
2013, Family Dollar now projects earnings in the range of $3.77
to $3.82 per share. The company had earlier forecasted earnings
between $3.73 and $3.93 per share.
The current Zacks Consensus Estimates for the fourth quarter
and fiscal 2013 are 84 cents and $3.77 per share,
Management now projects comparable-store sales increase of 2%
for the fourth quarter, but maintained the growth guidance of 3%
to 4% for fiscal 2013.
The economy is still not completely out of hibernation 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
A price war would definitely eat away margins, which in turn
would affect the company's results. In order to remain
competitive, it would be better to try out innovative ways to win
the heart of target consumers.
Other stock worth considering in the retail-discount industry,
Dollar Tree, Inc.
Ross Stores Inc.
), all of which hold Zacks Rank #2 (Buy).
DOLLAR TREE INC (DLTR): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
FREDS INC (FRED): Free Stock Analysis Report
ROSS STORES (ROST): Free Stock Analysis
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