Family Dollar Stores Inc.
) posted first-quarter fiscal 2014 earnings of 68 cents a share
that missed the Zacks Consensus Estimate by a penny, and dropped
1.4% from 69 cents delivered in the prior-year quarter. The
earnings came between the previously provided guidance range of
65cents to 75 cents a share. The retailer offer lucrative
discounts than it originally thought of to lure budget-conscious
The Matthews, North Carolina-based company said that
comparable-store sales fell 2.8% with customer transactions and
average consumer transaction value also declining. Comps faced a
tough year-over-year consumables comp comparisons.
Earlier, management had forecasted low-single digit decline in
comparable-store sales. Further, management added that comps for
the month of December tumbled 3%, given the uneven economic
scenario and tough consumer environment as softness persists in
Going forward, this self-service retail discount store chain
does not see much improvement in macroeconomic trends and as a
result lowered its earnings expectations. Shares of this Zacks
Rank #4 (Sell) stock fell 7.5% or $4.94 to $61.40 during
pre-market trading hours.
Let's Dig Further
Family Dollar posted a 3.2% increase in revenue to $2,499.7
million from the prior-year quarter, and reflected sales growth
across Consumables (up 4.7%) and Seasonal & Electronics (up
1.2%), partially offset by Home Products (down 0.8%) and Apparel
and Accessories (down 3.7%). However, total revenue fell short of
the Zacks Consensus Estimate of $2,504 million.
The strength witnessed in the Consumables category came on the
back of robust growth across refrigerated and frozen food, health
aids, and tobacco. Strong focus on consumables helped Family
Dollar to drive business from budget-constrained consumers.
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. The sales in the quarter were
driven by the lower-margin Consumables category, which now
accounts for 75% of first-quarter fiscal 2014 sales compared with
74% in the prior-year quarter.
Gross profit jumped 3.6% to $856.8 million, whereas gross
margin expanded 20 basis points to 34.3%. Higher markups and
lower freight charges were partly offset by lower-margin carrying
consumables items, increase markdowns and rise in inventory
shrinkage. Management anticipates gross margin to remain flat
during fiscal 2014.
Family Dollar stated that operating profit for the quarter
came in at $120.3 million down 5.2% year-over-year, while
operating margin contracted 40 basis points to 4.8%.
Other Financial Details
Family Dollar ended the quarter with cash and cash equivalents
of $170.5 million, total long-term debt of $500.3 million,
reflecting a total debt-to-capitalization ratio of 24.5%, and
shareholders' equity of $1,538.9 million. Capital expenditures
for the quarter were $112.5 million. Management now anticipates
capital expenditures between $450 and $500 million for fiscal
During the quarter, Family Dollar bought back approximately
1.8 million shares for an aggregate amount of $125 million. As of
Nov 30, 2013, the company still had $245.8 million at its
disposal under its share repurchase authorization. In fiscal
2014, management plans to repurchase shares worth approximately
During the quarter, Family Dollar opened 126 new outlets and
closed 1 store taking the total store count to 8,041. The company
also renovated, expanded, or relocated 179 stores. In fiscal
2014, the retailer plans to open about 525 new stores and close
Strolling Through Guidance
Management took a cautious stance while providing guidance for
fiscal 2014. Family Dollar now projects earnings in the band of
85 cents to 95 cents a share for the second quarter and between
$3.25 and $3.55 per share for fiscal 2014. Earlier, the company
had projected earnings in the range of $3.80 to $4.15.
The current Zacks Consensus Estimates for the second quarter
and fiscal 2014 are $1.21 and $3.99 per share, respectively. We
could witness a downward trend in the Zacks Consensus Estimate in
the coming days, given the trimmed outlook.
For fiscal 2014, management forecasts a low to mid-single
digit growth in total net sales but a low-single digit decline in
comparable-store sales. Comps are expected to decline in the
low-single digit range during the second quarter.
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
The TJX Companies, Inc.
), all of which hold Zacks Rank #2 (Buy).
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