We recently upgraded our recommendation on
Family Dollar Stores Inc.
) to Outperform with a price target of $73.00 on the back of
strategic initiatives undertaken to improve merchandising and
store operations. This has inspired growth in top and bottom
lines. Earlier, we had a Neutral view on the stock.
This is evident from the company's fourth-quarter fiscal 2012
results. The quarterly earnings of 75 cents per share came in
line with the Zacks Consensus Estimate but jumped 13.6% from 66
cents earned in the prior-year quarter. The operator of
self-service retail discount store chains posted a 10.8% increase
in revenue to $2,364.1 million from the prior-year quarter.
The economy is witnessing an uneven recovery and amidst such a
scenario, bargain hunters have no alternative but to hop several
shops in search of the best deal, with their main focus on
essential items, such as food. Family Dollar, with its low cost
options remains successful in enticing budget-constrained
Family Dollar, which competes with
Wal-Mart Stores Inc.
Dollar General Corporation
), now expects growth of 13% to 15% in net sales and an increase
of 12.6% to 20.9% in earnings per share in fiscal 2013. The
company's target for 3 to 5 years includes double-digit
The company remains committed towards better price management,
cost containment efforts, effective inventory management, private
label offering and expanded operating hours that should augur
well for sales. Moreover, in order to enhance its market share,
Family Dollar intends to focus on both consumables and
discretionary categories. The company also intends to increase
its direct-to-factory purchases to 13% in fiscal 2015 from 4% in
The company is accelerating new store openings. Family Dollar
opened 475 stores and renovated, expanded, or relocated 854
stores during fiscal 2012. Through fiscal 2013, the retailer
plans to open about 500 new stores and renovate, expand, or
relocate 850 stores. The company projects store count to increase
at a rate of 5% to 7% over the next 3 to 5 years.
The above analysis advocates our bullish stance on the stock,
which is well defined through our Zacks #2 Rank that translates
into a short-term "Buy" rating.
DOLLAR GENERAL (DG): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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