On Apr 30, 2014, Zacks Investment Research downgraded
Family Dollar Stores Inc.
), the self-service retail discount store chain, to a Zacks Rank
#5 (Strong Sell).
Why the Downgrade?
Estimates for Family Dollar have shown a downtrend since it
reported soft second-quarter fiscal 2014 results on Apr 10. The
quarterly earnings of 80 cents a share missed the Zacks Consensus
Estimate of 90 cents, and plunged approximately 34% from the
prior-year quarter. Management blamed the quarter's debacle on
harsh weather conditions that resulted in shuttering of stores,
disturbance in the delivery of merchandises, and increase in
utility and store maintenance costs.
The Matthews, NC-based company said that comparable-store
sales fell 3.8% due to decline in customer transactions, partly
offset by rise in average consumer transaction value. Family
Dollar, which competes with
Dollar General Corp.
), posted a 6.1% decrease in net sales to $2,716.6 million from
the prior-year quarter, and also fell short of the Zacks
Consensus Estimate of $2,789 million.
Family Dollar announced a slew of measures to improve its
operational and financial performance. Management intends to
reduce prices of 1,000 basic items, optimize cost structure by
lowering the headcount, closing of about 370 underperforming
outlets and being more rational on new store openings to reap
higher return on investment. We believe only time will tell how
successful management will be in its endeavors to bring the
company back on the growth trajectory.
Management now projects earnings in the band of 85 cents to 95
cents a share for the third quarter and between 75 cents and 85
cents for the fourth quarter. For fiscal 2014, the company
envisions earnings in the range of $3.05 to $3.25 per share.
The lower-than-expected results triggered a downtrend in the
Zacks Consensus Estimate, as analysts become less constructive on
the stock's future performance. This is evident from the movement
witnessed in the Zacks Consensus Estimate, which fell 7.9% to
$3.15 for fiscal 2014 and 10.7% to $3.43 for fiscal 2015 in the
past 30 days.
Stocks That Warrant a Look
Other better-ranked retail stocks that look promising and are
expected to continue with their upbeat performance include
Skechers USA Inc.
) holding a Zacks Rank #1 (Strong Buy), and
Foot Locker, Inc.
) carrying a Zacks Rank #2 (Buy).
DOLLAR GENERAL (DG): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
FOOT LOCKER INC (FL): Free Stock Analysis
SKECHERS USA-A (SKX): Free Stock Analysis
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