On Dec 31, 2013, we reiterated our long-term recommendation on
department store retailer,
Family Dollar Stores Inc.
) with a target price of $68.00. This was based on company's
better-than-expected fiscal fourth-quarter 2013 results, along
with strategic and store expansion endeavors. However, lower
discretionary sales due to the sluggish macroeconomic environment
and stiff competition is a near-term threat to this stock's
Why the Reiteration?
Family Dollar's commitment towards better price management, cost
containment, effective inventory management, private label
offering, expanded operating hours and merchandise initiatives
are likely to drive sales and margin trends. Moreover, in order
to increase market share, the company intends to focus on
consumables as well as discretionary categories.
Also, the company's sustained focus on category management, price
optimization, merchandise financial planning and assortment
planning to optimize merchandising and supply chain processes are
commendable. These measures help to mitigate inventory risks and
adapt to the changing preferences of consumers.
Family Dollar, which competes with
Dollar General Corp.
Dollar Tree, Inc.
), is also accelerating its pace of store openings. Family Dollar
opened 500 stores and renovated, expanded, or relocated 830
stores during fiscal 2013. Through fiscal 2014, the retailer
plans to open about 525 new outlets and renovate, expand, or
relocate 850 stores.
Further, strong performance of the consumables category helped
Family Dollar to post robust fourth-quarter fiscal 2013 results.
Both the top and bottom line improved significantly year over
year However, while the top line fell short of the Zacks
Consensus Estimate, the bottom line easily surpassed the same.
On the flip side, discretionary sales are likely to remain under
pressure because of the higher payroll taxes, soft job market,
the present political gridlock and other macroeconomic factors.
Further, the company's expansion in the geographies where it
already serves could boomerang leading to cannibalization.
Further this Zacks Rank #4 (Sell) stock hinted that
comparable-store sales in the first quarter of fiscal 2014 are
expected to face tough consumables comparisons.
Other Stocks to Consider
Other better ranked stock in the retail space includes
The TJX Companies, Inc.
), which carries a Zacks Rank #2 (Buy).
DOLLAR GENERAL (DG): Free Stock Analysis
DOLLAR TREE INC (DLTR): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
TJX COS INC NEW (TJX): Free Stock Analysis
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