Family Dollar Stores Inc.
), the operator of self-service retail discount store chains,
posted lower-than-expected first-quarter fiscal 2013 results and
trimmed its earnings outlook. The quarterly earnings of 69 cents
a share missed the Zacks Consensus Estimate of 74 cents but
inched up 1.5% from 68 cents earned in the prior-year
The earnings came in at the lower-end of the previously
provided guidance range of 69 cents to 78 cents due to gross
margin pressure coupled with anticipated headwinds related to
insurance expenditure. Shares of Family Dollar fell 9% or $5.79
to $58.25 during pre-market trading hours.
Let's Dig Further
Family Dollar posted a 12.7% increase in revenue to $2,421.7
million from the prior-year quarter, and reflected sales growth
across Consumables (up 18.5%) and Seasonal & Electronics (up
2.7%) partially mitigated by Apparel and Accessories (down 4.4%)
and Home Products (down 1.5%). Total revenue also came ahead of
the Zacks Consensus Estimate of $2,383 million. The strength
witnessed in the Consumables category came on the back of robust
growth across tobacco, food and health, and beauty aids.
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 options.
The company trades in merchandise generally priced under $10.
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-constrained consumers. Comps jumped 6.6% in the quarter
compared with a growth of 4.1% in the prior-year quarter.
The sales in the quarter were driven by the lower-margin
Consumables category, which now accounts for 73.9% of
first-quarter fiscal 2013 sales compared with 70.3% in the
prior-year quarter. Consequently, the increase in sales of lower
margin merchandises weighed upon the company's gross margin that
contracted approximately 120 basis points to 34.1% during the
quarter under review. Increased discounts and 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
spending, and added that holiday season appeared much tough than
actually thought of. The company's December comparable-store
sales rose approximately 2.5% on the back of double-digit sales
in consumable items.
Other Financial Details
Family Dollar ended the quarter with cash and cash equivalents
of $112.3 million, total long-term debt of $516.4 million,
reflecting a total debt-to-capitalization ratio of 27.6%, and
shareholders' equity of $1,352.6 million. Capital expenditures
for the quarter were $196.4 million. Management now anticipates
capital expenditures between $600 and $650 million for fiscal
During the quarter, the company repurchased about 0.4 million
shares, aggregating approximately $25 million and paid $24.2
million in dividends. As of November 24, 2012, the company still
had $120.8 million at its disposal under its share repurchase
During the quarter, Family Dollar opened 125 new outlets and
closed 1 location taking the total store count to 7,566. The
company also renovated, expanded, or relocated 169 stores.
Through fiscal 2013, the retailer plans to open about 500 new
stores and close 70 to 90 stores.
Strolling Through Guidance
Management now expects earnings between $1.18 and $1.28 for
the second quarter and in the band of $3.95 to $4.20 per share
for fiscal 2013. The company had earlier forecasted fiscal 2013
earnings between $4.10 and $4.40 per share. The current Zacks
Consensus Estimates for the second quarter and fiscal 2013 are
$1.39 and $4.25 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
Management projects second quarter comparable-store sales
growth in the range of 4% to 5% and fiscal 2013 comparable-store
sales to increase between 4% and 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.
Currently, we have a long-term Outperform recommendation on
the stock. Moreover, Family Dollar, which competes with
Wal-Mart Stores Inc.
Dollar General Corporation
), maintain a Zacks #2 Rank that translates into a short-term Buy
DOLLAR GENERAL (DG): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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