Family Dollar Stores Inc.
), the operator of self-service retail discount store chains,
posted lower-than-expected second-quarter fiscal 2013 results
citing that the unexpected delay in tax refunds of 2012 adversely
impacted sales at the end of January and at the beginning of
The quarterly earnings of $1.21 per share missed the Zacks
Consensus Estimate by a penny but rose 5.2% from $1.15 earned in
the prior-year quarter.
The earnings came in at the lower-end of the previously
provided guidance range of $1.18 to $1.28 per share.
Further, management hinted that going forward discretionary
sales would remain under pressure because of financial challenges
that the customers are facing and due to cold spring weather.
Moreover, this Zacks Rank #4 (Sell) stock also trimmed its
Let's Dig Further
Family Dollar, which competes with
Wal-Mart Stores Inc.
Dollar Tree, Inc.
Dollar General Corporation
), posted a 17.7% increase in net sales to $2,894 million from
the prior-year quarter, and reflected sales growth across
Consumables (up 26.6%), Seasonal & Electronics (up 4.7%) and
Apparel and Accessories (up 0.5%), partially mitigated by Home
Products (down 1.4%). Total revenue came ahead of the Zacks
Consensus Estimate of $2,885 million.
The strength witnessed in the Consumables category came on the
back of robust growth across tobacco, food, and health and beauty
aids. However, management cautioned that Home and Apparel sales
would be lower-than-expected in the second-half of fiscal 2013
due to budget constraints.
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
Based in Matthews, North Carolina, Family Dollar hinted that
comparable-stores sales are on the rise on improved traffic count
and increase in average consumer transaction value. Deeper focus
on consumables helped Family Dollar to drive business from
budget-conscious consumers. Comps jumped 2.9% in the quarter
compared with a growth of 5.4% in the prior-year quarter.
The sales in the quarter were driven by the lower-margin
Consumables category, which now accounts for 69.5% of
second-quarter fiscal 2013 sales compared with 64.6% in the
prior-year quarter. Consequently, the increase in sales of lower
margin merchandises weighed upon the company's gross margin that
contracted approximately 150 basis points to 33.4% during the
quarter under review. Higher inventory shrinkage also hurt the
margins. For fiscal 2013, management expects gross margin to
remain under pressure.
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. Family Dollar stated that
people are now becoming more cautious on their discretionary
Other Financial Details
Family Dollar ended the quarter with cash and cash equivalents
of $117.8 million, total long-term debt of $516.4 million,
reflecting a total debt-to-capitalization ratio of 26.6%, and
shareholders' equity of $1,424.7 million. Capital expenditures
for the first-half of fiscal 2013 were $409.7 million. Management
now anticipates capital expenditures between $650 million and
$700 million for fiscal 2013.
During the first-half, the company repurchased about 1.2
million shares, aggregating approximately $75 million and paid
$48.5 million in dividends. As of Mar 2, 2013, the company still
had $370.8 million at its disposal under its share repurchase
During the quarter, Family Dollar opened 126 new outlets and
closed 17 locations taking the total store count to 7,675. The
company also renovated, expanded, or relocated 159 stores.
Through fiscal 2013, the retailer plans to open about 500 new
stores and close 30 to 50 stores.
Strolling Through Guidance
Management now expects earnings between 98 cents and $1.08 for
the third quarter and in the band of 85 cents to 95 cents a share
for the fourth quarter of fiscal 2013. For fiscal 2013, Family
Dollar now projects earnings in the range of $3.73 to $3.93 per
share. The company had earlier forecasted fiscal 2013 earnings
between $3.95 and $4.20 per share.
The current Zacks Consensus Estimates for the third quarter
and fiscal 2013 are $1.19 and $3.97 per share, respectively,
which lies ahead of the company's guidance range. Consequently,
we could witness a correction in the Zacks Consensus Estimates in
the coming days.
Management expects that sales of discretionary categories
would remain soft in the second-half of fiscal 2013, and
anticipates comparable-store sales growth of 2% to 4% with comps
in the third quarter forecasted to be at the lower end of the
projected range and that of the fourth quarter at the upper
For fiscal 2013 comparable-store sales are expected to
increase between 3% and 4%. The company had previously forecasted
comps in the range of 4% to 6%.
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.
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