We have maintained our Neutral recommendation on
Family Dollar Stores Inc
), the operator of self-service retail discount store chains,
with a target price of $71.00. The stock currently carries a
Zacks Rank #3 (Hold).
Why the Reiteration?
Earlier this month, Family Dollar came out with its
third-quarter fiscal 2013 results, wherein earnings of $1.05 per
share beat the Zacks Consensus Estimate by a couple of cents, but
fell by a penny from the prior-year quarter. Sales did increase
9% to $2,573.5 million but missed the Zacks Consensus
However, the fact that the sales in the quarter were driven by
the lower-margin Consumables category remains a concern. The
category now accounts for 72.5% of third-quarter fiscal 2013
sales compared with 68.9% in the prior-year quarter. We are
skeptical regarding the increasing gross margin pressure due to
fall in sales of high margin products.
Going forward, Family Dollar will increase emphasis on better
price management, cost containment, inventory management and
private label offering to drive sales and margins.
Management now expects earnings to be in the range of 82 cents
to 87 cents a share for the fourth quarter of fiscal 2013.
Moreover, for fiscal 2013, earnings are projected to be in the
range of $3.77 to $3.82 per share. Comparable-store sales are
expected to rise by 2% during the fourth quarter, while for
fiscal 2013, it is expected to increase in the range of 3% to
Other Stocks That Warrant a Look
Until any further upward revision in the Zacks Rank on Family
Dollar, the other stock in the retail/wholesale sector worth
),which carries a Zacks Rank #1 (Strong Buy).
Ross Stores Inc.
Dollar Tree, Inc.
) both carrying a Zacks Rank #2 (Buy) are also worth
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FAMILY DOLLAR (FDO): Free Stock Analysis
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ROSS STORES (ROST): Free Stock Analysis
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