Family Dollar Stores Inc.
) posted second-quarter fiscal 2014 earnings of 80 cents a share
that missed the Zacks Consensus Estimate of 90 cents, and plunged
approximately 34% from $1.21 delivered in 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
Consequently, Family Dollar announced slew of measures to
improve its operational and financial performances. 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 rationale on new store
opening to reap higher return on investment.
Management hinted that employee reduction and shuttering of
stores are projected to generate $40 million to $45 million of
annualized operating profit benefit, commencing from the third
quarter. We believe only time will tell how far management would
be success in their endeavors to bring the company back on the
The company's proposed initiatives provided cushion to this
Zacks Rank #4 (Sell) stock, as shares rose 1.5% or 87 cents to
hours, despite disappointing results.
Coming back to the quarter, comparable-store sales for this
Matthews, North Carolina based company fell 3.8% due to decline
in customer transactions, partly offset by rise in average
consumer transaction value.
Let's Dig Further
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, reflecting sales decline across
Consumables (down 3.9%), Home Products (down 12.6%), Apparel and
Accessories (down 11.3%) and Seasonal & Electronics (down
9.8%). However, total revenue fell short of the Zacks Consensus
Estimate of $2,789 million.
Excluding the extra week in the prior-year quarter, net sales
would have jumped 0.4%. The strength witnessed in the Consumables
category compared to others came on the back of robust growth
across refrigerated and frozen food and tobacco. Strong focus on
consumables helped Family Dollar to drive business from
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. Consumables category, now
accounts for 71% of second-quarter fiscal 2014 sales compared
with 70% in the prior-year quarter.
Gross profit dipped 6.7% to $902.3 million, whereas gross
margin contracted 20 basis points to 33.2%. The lower-margin
carrying consumables items and increase markdowns were partly
offset by higher markups, lower freight charges and fall in
inventory shrinkage. Management anticipates gross margin to
shrivel during fiscal 2014.
Family Dollar stated that operating profit for the quarter
came in at $140.3 million down 35.4% year-over-year, while
operating margin contracted about 230 basis points to 5.2%.
Other Financial Details
Family Dollar ended the quarter with cash and cash equivalents
of $157.2 million, total long-term debt of $500.4 million,
reflecting a total debt-to-capitalization ratio of 23.7%, and
shareholders' equity of $1,607.4 million. Capital expenditures
for the first-half of fiscal 2014 were $219.7 million. Management
now anticipates capital expenditures between $450 million and
$500 million for fiscal 2014.
During the first half, Family Dollar bought back approximately
1.8 million shares for an aggregate amount of $125 million and
paid dividend of $59.5 million. As of Mar 1, 2014, the company
still had $245.8 million at its disposal under its share
During the first half, Family Dollar opened 244 new outlets
and closed 22 stores taking the total store count to 8,138. The
company also renovated, expanded, or relocated 319 stores. In
fiscal 2014, the retailer plans to open about 525 new stores and
close 400 stores. The company anticipates opening 350 to 400
outlets in fiscal 2015.
Strolling Through Guidance
Family Dollar 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 current Zacks Consensus Estimates for the third quarter
and fiscal 2014 are 98 cents and $3.40 per share, respectively.
We could witness a downward trend in the Zacks Consensus Estimate
in the coming days.
Management forecasts a low-single-digit decline in
comparable-store sales during the third quarter. For the fourth
quarter, comparable-store sales are expected to be flat to up
marginally. For fiscal 2014, the company projects a
low-single-digit jump in net sales, while a low-single-digit
decline in comparable-stores sales.
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
shoppers. 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 industry, include
American Apparel, Inc.
) all of which hold Zacks Rank #2 (Buy).
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