Family Dollar Stores, Inc. (FDO) posted better-than-expected fourth-quarter 2010 results due to healthy sales witnessed in the Consumables categories, sending the stock up 5.1% to $45.56 in pre-market trading.
The quarterly earnings of 56 cents a share beats the Zacks Consensus Estimate of 51 cents, and jumped 30.2% from 43 cents earned in the prior-year quarter. Management now expects first-quarter 2011 earnings between 55 cents and 60 cents, and fiscal 2011 earnings between $2.95 and $3.15.
The current Zacks Consensus Estimates for the first quarter and fiscal 2011 are 57 cents and $2.96 per share. We observe that Family Dollar’s strategic initiatives to improve merchandising and store operations have helped grow the top and bottom lines.
The operator of self-service retail discount store chains posted an 8% year-over-year increase in revenues to $1,956.8 million, which remained in line with the Zacks Consensus Estimate, and reflects sales growth registered across Consumables categories (up 9.8%), Seasonal and Electronics (up 5.7%), Home Products (up 4.9%) and Apparel and Accessories (up 3%).
Family Dollar, which faces stiff competition from Wal-Mart Stores Inc. (WMT) and Dollar General Corporation (DG), forecast fiscal 2011 sales to jump by 8% to 10%. We believe effective price management, cost containment, tighter inventory control, private label offering, expanded operating hours and merchandise initiatives should drive sales and margin trends.
Gross margin expanded 20 basis points to 34.7%, whereas operating margin increased 80 basis points to 5.9%. Management expects operating margin to increase in fiscal 2011, based upon flat gross margin and lower SG&A expenses.
The company’s point-of-sale technology and store realignment initiatives better position it to drive traffic, meet customer-oriented demand and improve in-store shopping experience. Consumers with lower disposable income are now prioritizing their purchases and looking for low-priced options. The company trades in merchandise generally priced under $10.
Based in Matthews, North Carolina, Family Dollar hinted that comparable-stores sales are on the rise due to improved traffic counts and increase in average transaction value. Comps jumped to 6.1% in the quarter under review. Management predicts both first-quarter and fiscal 2011 comps to increase by 5% to 7%.
Family Dollar ended fiscal 2010 with cash and cash equivalents of $382.8 million, long-term debt of $250 million and shareholders’ equity of $1,421.6 million. Capital expenditures for the fiscal year were $212.4 million. Management expects capital expenditures for fiscal 2011 between $300 and $350 million.
During fiscal 2010, Family Dollar bought back nearly 9.4 million shares aggregating $332.2 million. The company’s board authorized a $750 million share repurchase program, and notified that all other earlier authorizations are nullified.
During the quarter, Family Dollar opened 75 stores and closed 14 stores, and during fiscal 2010, the company opened 200 stores and closed 70 stores. During fiscal 2011, the retailer plans to open about 300 stores and refurbish 600 to 800 stores.
Currently, we have a Neutral rating on Family Dollar. Moreover, the Zacks #3 Rank, which translates into a short-term Hold recommendation, correlates with our long-term view.
DOLLAR GENERAL (DG): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
Zacks Investment Research
