Family Dollar Stores Inc.
) posted third-quarter fiscal 2014 earnings of 85 cents a share
that missed the Zacks Consensus Estimate of 90 cents, and plunged
19% from $1.05 earned in the prior-year quarter. Management blamed
the quarter's debacle on economic headwinds and stiff competition.
The disappointing results led to a 2.5% decline in the share price
of this Zacks Rank #4 (Sell) stock during
To bring itself back on the growth trajectory, this self-service
retail discount store chain had announced a slew of measures last
quarter to improve its operational and financial performances.
Management reduced prices of approximately 1,000 basic items and
disclosed plans to invest $50 million annually to add value-based
products, optimize the cost structure by lowering headcount, close
about 370 underperforming outlets and being more rationale on new
store opening to reap higher return on investment. The company, in
fiscal 2015, plans to extend its cooler facilities, roll out
products such as wine and beer to draw traffic, and undertake
initiatives to enhance store productivity.
Including restructuring charges, the earnings came in at 71
cents a share, down 32.4% year over year.
Let's Dig Further
Family Dollar, which competes with
Dollar General Corp.
), posted a 3.3% increase in net sales to $2,659 million from the
prior-year quarter, reflecting sales growth across Consumables (up
4.4%), Apparel and Accessories (up 2.1%) and Seasonal &
Electronics (up 1.6%), offset by decline witnessed in Home Products
(down 1.6%). Total revenue also came ahead of the Zacks Consensus
Estimate of $2,363 million.
The strength witnessed in the Consumables category came on the
back of robust growth across refrigerated and frozen food 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
choosing the best deal, with their primary focus being on
consumables. The Consumables category accounted for 73.3% of
third-quarter fiscal 2014 sales compared with 72.5% in the
However, comparable-store sales for this Matthews, NC-based
company fell 1.8% due to a decline in customer transactions, partly
offset by a rise in average consumer transaction value.
Adjusted gross profit increased 2.2% to $912.3 million, whereas
gross margin contracted 40 basis points to 34.3%. The lower-margin
carrying consumables, increased markdowns and lower markups, were
partly offset by fall in inventory shrinkage. Management expects
gross margin to decline in fiscal 2014.
Family Dollar stated that adjusted operating profit for the
quarter came in at $145.3 million, down 22.9% year over year.
Operating margin shrank about 180 basis points to 5.5%.
Other Financial Details
Family Dollar ended the quarter with cash and cash equivalents
of $163.7 million, total long-term debt of $500.4 million,
reflecting a total debt-to-capitalization ratio of 23.2%, and
shareholders' equity of $1,656.6 million. Capital expenditures for
the first-nine months of fiscal 2014 totaled $307.2 million.
Management now projects capital expenditures between $450 million
and $500 million for fiscal 2014.
During the first nine months, Family Dollar bought back
approximately 1.8 million shares for an aggregate amount of $125
million and paid dividend of $94.8 million. As of May 31, 2014, the
company still had $245.8 million at its disposal under its share
During the quarter, Family Dollar opened 111 new outlets and
closed 3 stores taking the total store count to 8,246. The company
also renovated, expanded, or relocated 266 stores. In fiscal 2014,
the retailer plans to open about 525 new stores and close 400
stores. The company anticipates opening 350 to 400 outlets in
Guidance at a Glance
Family Dollar now projects earnings in the band of 75 cents to
85 cents for the fourth quarter and between $3.07 and $3.17 per
share for fiscal 2014. Including restructuring charges, the company
envisions earnings between 38 cents and 48 cents for the fourth
quarter and in the range of $2.56 to $2.66 per share for the full
The current Zacks Consensus Estimate for the fourth quarter and
fiscal 2014 are 75 cents and $3.15 per share, respectively.
Management forecasts flat comparable-store sales for the fourth
quarter. For fiscal 2014, the company expects a low single-digit
jump in net sales, while a low single-digit decline in
The economy is still not completely out of the woods 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 attracting 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
Other stocks worth considering in the retail industry, include
Big Lots Inc.
Burlington Stores, Inc.
). Both hold a Zacks Rank #2 (Buy).
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