Family Dollar Stores Inc.
), the operator of self-service retail discount store chains,
posted fourth-quarter fiscal 2013 earnings of 86 cents a share
that beat the Zacks Consensus Estimate by a couple of cents, and
rose 14.7% from 75 cents delivered in the prior-year quarter. The
earnings came near the high-end of the previously provided
guidance range of 82 cents to 87 cents a share. Consumables
category was the driving factor behind the sturdy results.
Matthews, North Carolina-based Family Dollar said that
comparable-store sales remained flat with traffic count and
average consumer transaction value also remaining even. Earlier,
management had forecasted 2% jump in comparable-store sales.
Consequently, shares fell 3.2% or $2.25 to $67.20 during
pre-market trading hours.
Including one-time items, earnings came in at 88 cents a
share, up 27.5% from 69 cents earned in the year-ago quarter.
Let's Dig Further
Family Dollar posted a 5.8% increase in revenue to $2,502.3
million from the prior-year quarter, and reflected sales growth
across Consumables (up 8.3%), Seasonal & Electronics (up
2.3%) and Home Products (up 0.1%), partially offset by Apparel
and Accessories (down 4.9%). However, total revenue fell short of
the Zacks Consensus Estimate of $2,556 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 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
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 74.2% of fourth-quarter fiscal 2013 sales compared
with 72.5% in the prior-year quarter.
Adjusted gross profit jumped 8% to $863.5 million, whereas
gross margin expanded 70 basis points to 34.5%. 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
expansion during fiscal 2014.
Family Dollar stated that adjusted operating profit for the
quarter came in at $150.6 million up from $137.1 million, while
adjusted operating margin increased 20 basis points to 6%.
Other Financial Details
Family Dollar ended the quarter with cash and cash equivalents
of $141 million, total long-term debt of $516.5 million,
reflecting a total debt-to-capitalization ratio of 24.4%, and
shareholders' equity of $1,599.1 million. Capital expenditures
for fiscal 2013 were $744.4 million. Management now anticipates
capital expenditures between $550 and $600 million for fiscal
During the year, Family Dollar paid a dividend of $108.3
million and bought back approximately 1.2 million shares for an
aggregate amount of $75 million. As of August 31, 2013, the
company still had $370.8 million at its disposal under its share
repurchase authorization. In fiscal 2014, management plans to
repurchase shares worth approximately $100 million.
During fiscal 2013, Family Dollar opened 500 new outlets and
closed 26 stores, taking the total store count to 7,916. The
company also renovated, expanded, or relocated 830 stores. In
fiscal 2014, the retailer plans to open about 525 new stores and
close 80 stores.
Strolling Through Guidance
Management took a cautious stance while providing guidance for
fiscal 2014. Family Dollar now projects earnings in the band of
65 cents to 75 cents a share for the first quarter and between
$3.80 and $4.15 per share for fiscal 2014.
The current Zacks Consensus Estimates for the first quarter
and fiscal 2014 are 77 cents and $4.14 per share,
For fiscal 2014, management forecasts a mid-single digit
growth in total net sales and a low-single digit jump in
comparable-store sales. However, comps are expected to decline in
the low-single digit range during the first 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
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. Family Dollar currently holds
Zacks Rank #4 (Sell).
Other stock worth considering in the retail industry, include
The TJX Companies, Inc.
Dollar General Corp.
Ross Stores Inc.
), all of which hold Zacks Rank #2 (Buy).
DOLLAR GENERAL (DG): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
ROSS STORES (ROST): Free Stock Analysis
TJX COS INC NEW (TJX): Free Stock Analysis
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