By Jessica Wohl
Oct 9 Family Dollar Stores Inc said on
Wednesday it was taking a cautious approach to 2014 as shoppers
focus on basics, and posted a better-than-expected quarterly
profit as its focus on controlling costs helped offset
The results showed Family Dollar was not weathering economic
issues like higher payroll taxes as well as bigger discounter
Dollar General Corp.
Shares of Family Dollar fell nearly 2 percent to $68.12 in
early trading, while Dollar General dipped 0.5 percent to
Family Dollar's same-store sales, or sales at stores open at
least a year, were flat in the fourth quarter, missing the
company's July forecast for an increase of about 2 percent.
Traffic, or customer visits to stores, and the average spent on
transactions were also flat in the quarter.
Family Dollar expects same-store sales to decline in the
low-single digits in percentage terms in the current first
quarter, after rising 6.6 percent a year earlier.
"At the end of the day, retail stocks are all about sales
and I would assume the stock will be a little bit weaker"
because of the flat same-store sales last quarter and the
outlook for negative same-store sales this quarter, said Edward
Jones analyst Brian Yarbrough.
Family Dollar warned months ago that the economy was taking
a toll on shoppers. The environment "was more challenging than
expected," Chairman and Chief Executive Howard Levine said in a
statement on Wednesday.
His comments came after larger retailers, including Wal-Mart
Stores Inc's Walmart U.S., noted that issues like higher
taxes were leading low-income shoppers to curb spending.
Both Family Dollar and Dollar General continue to open
hundreds more stores. They both started to sell tobacco products
like cigarettes in recent months since many of their customers
tend to use tobacco more often than consumers overall. However,
those margins are thin and pressure overall profit margins.
"We are left wondering why management's initiatives are not
currently driving or are not expected to drive stronger sales
growth" this year, said BMO Capital Markets analyst Wayne Hood.
He rates Family Dollar as "market perform" and Dollar General as
Dollar General, which has a business model similar to that
of Family Dollar, posted a 5.1 percent rise in second-quarter
same-store sales, and said traffic and average transactions were
both up. It also predicted same-store sales would rise 4 percent
to 5 percent this year.
Walmart U.S. has said it expects same-store sales to be flat
in the third quarter after falling 0.3 percent in the second
Family Dollar earned $102.2 million, or 88 cents per share,
in the fourth quarter of fiscal 2013 ended Aug. 31, up from
$80.9 million, or 69 cents per share, a year earlier.
It reported adjusted earnings per share of 86 cents, which
excluded $5 million from a change in accounting for certain
vendor allowances. That exceeded analysts' average estimate of
84 cents, according to Thomson Reuters I/B/E/S.
Sales rose 5.8 percent to $2.5 billion, missing analysts'
expectations of $2.56 billion.
For fiscal 2014, it forecast a low-single-digit increase in
same-store sales and a mid-single-digit increase in total sales.
Family Dollar said it expects higher profitability as it
moves through the fiscal year, which began on Sept. 1. It
expects to earn $3.80 to $4.15 per share in fiscal 2014. It
earned $3.83 per share in fiscal 2013, which included an extra
week that it estimated added 7 cents to profit.
For the first quarter of fiscal 2014, Family Dollar forecast
earnings per share of 65 cents to 75 cents, compared with a
profit of 69 cents per share a year earlier.
It plans to open about 525 stores and close about 80 stores
in fiscal 2014. It opened 500 stores, closed 26 stores and
renovated, relocated or expanded 830 stores in fiscal 2013.
It targeted capital expenditures of $550 million to $600
million this year, well below $744.4 million in fiscal 2013.