Following its restructuring program, Family Dollar Stores Inc. (FDO), the operator of self-service retail discount store chains, recently announced calculated actions to reinforce its operations by chopping more than 100 jobs, the Business Journal reported.
The move will permit Family Dollar to sustain its streamlined group, thus facilitating the company in making rapid decisions in a vivacious working and aggressive situation.
Family Dollar operates in a highly competitive discount retail merchandise sector. The company faces stiff competition from Wal-Mart Stores Inc. (WMT) and Dollar General Corporation (DG), which will likely continue to weigh on its results. The competitors have larger number of stores, greater market presence, brand recognition, and financial resources.
To mitigate this risk, the company plans to open 300 stores in fiscal 2011. Family Dollar will also refurbish more than 800 stores in the coming quarters and will boost its international sourcing potential.
Earlier, the retailer refused a voluntary offer from Trian Group, led by Nelson Peltz, to acquire 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.
The buzz was that Family Dollar has engaged Morgan Stanley and Cleary Gottlieb Steen & Hamilton LLP as its financial and legal advisors to guide the board of directors during the evaluation process.
Family Dollar Stores operates a chain of retail discount stores in the United States. It offers general merchandise in four categories: consumables, home products, apparel and accessories, and seasonal and electronics. The company presently operates more than 6,800 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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