On Jun 19, 2014, we issued an updated research report on
Family Dollar Stores Inc.
) following the company's adoption of poison pill after Carl Icahn
acquired a stake in it.
Carl Icahn acquired a 9.4% stake in this Matthews, NC-based
Family Dollar that pushed the discount store retailer to adopt a
one-year shareholder right plan to prevent activist investors from
completely taking it over. The shareholder right plan will be
exercisable only when a person or group acquires 10% of the
company's common stock. The poison pill got the support of all the
directors except Edward Garden, who did not favor the move.
Market reports reveal that Carl Icahn is compelling Family
Dollar to put itself up for sale, given its disappointing
performance amid the tough retail environment. The billionaire
investor also demanded the addition of three of his firm's members
to the company's board for the early initiation of the process. In
response to this, the company said that it remains committed to
improve its operational as well as financial performance and to
seek opportunities in the best interest of the shareholders.
Family Dollar, which competes with
Dollar General Corporation
), has been in troubled waters for some time now. The soft economic
recovery and mounting competition from other big brick and mortar
retailers along with online giants have affected sales and
profitability. The company posted a 6.1% decline in sales and a 34%
slump in earnings per share for the second quarter of fiscal
Management expects gross margins to be under pressure going
forward due to the increase in sale of low margin consumables and
soft sale of discretionary products. For fiscal 2014, the company
projects a low-single-digit rise in net sales and a low
single-digit decline in comps.
Consequently, Family Dollar announced a number of measures to
improve its operational and financial performances. Management
intends to reduce prices of 1,000 basic items, optimize cost
structure by reducing headcount and close 370 underperforming
outlets. It also plans to be more rational on new store openings to
reap higher return on investment.
Family Dollar currently holds a Zacks Rank #4 (Sell).
Other Stocks that Warrant a Look
Other better-ranked retail stocks that look promising and are
expected to continue with their upbeat performance include
Rocky Brands, Inc.
), both carrying a Zacks Rank #2 (Buy).
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FAMILY DOLLAR (FDO): Free Stock Analysis Report
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