Family Dollar Stores Inc. (FDO), the operator of self-service retail discount store chains, recently posted healthy sales results for the second quarter ended February 26, 2011.
The company’s comparable-store sales rose 5.1% for the second quarter of 2011, with net sales rising by 8.3% to $2.26 billion compared with $2.09 billion delivered in the prior-year quarter, driven by strong performance at consumable and seasonal segment.
Based in Matthews, North Carolina, Family Dollar Stores noted that sales in January were adversely affected by winter storms, while spring-like conditions facilitated healthy sales in February.
Year to Date
Family Dollar registered a growth of 6.0% in comparable-store sales during the period. Further, the company enhanced the shareholders return by increasing the quarterly cash dividend by 16.1% coupled with an 8.9 million share repurchases for approximately $408.0 million. Meanwhile, it completed an initial public debt offering of $300.0 million in 10-year notes.
Moreover, the company opened 146 new stores compared with 86 store openings during the same period last year. Family Dollar also refurbished 313 stores and aims to achieve its target of 800 store reformations in fiscal 2011.
Guidance Goes Up
Buoyed by healthy sales results, Family Dollar now expects earnings to be in the range of 97 cents to 98 cents per share for the second quarter of fiscal 2011 compared with its earlier expectation of 92 cents to 97 cents per share.
The current Zacks Consensus Estimate for the second quarter of 2011 is 98 cents per share.
It’s Trian Again
Trian group, led by Nelson Peltz approached Family Dollar’s board to reassess its bid. Earlier, the retailer refused a voluntary offer from Trian Group for the buyout as it felt that the bid significantly underrated the company. Trian Group, the largest shareholder of the company with approximately 8.0% stake, has offered $55.0 to $60.0 per share or approximately $7.0 billion to Family Dollar.
Our View
Family Dollar Stores, which operates a chain of retail discount stores in the United States, faces stiff competition from Wal-Mart Stores Inc. (WMT) and Dollar General Corporation (DG). It offers general merchandise in four categories: consumables, home products, apparel and accessories, and seasonal and electronics. The company presently operates 6,888 stores in 44 states.
Family Dollar’s strategic initiatives to enhance the merchandising, marketing, and store operations have resulted in persistent growth in the top and bottom lines. In order to enhance the market share, Family Dollar intends to focus on both consumable and discretionary categories
Further, the company has effective price and inventory management, cost control, private label offering, expanded operating hours to drive sales and margin trends.
Moreover, the company’s point-of-sale technology (credit card and food stamp acceptance) and store realignment initiatives better positions it to increase traffic, meet the customer’s demand and enrich its in-store shopping experience.
However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.
At present, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Family Dollar holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
DOLLAR GENERAL (DG): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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