On Jun 19, 2014, we issued an updated research report on Family Dollar Stores Inc. ( FDO ) 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 ( DG ), 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 2014.
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 Carter's, Inc. ( CRI ) and Rocky Brands, Inc. ( RCKY ), both carrying a Zacks Rank #2 (Buy).
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