Family Dollar Earnings Fall Short of Street Estimates (FDO)
Family Dollar Stores (NYSE: FDO) reported on Thursday that its profits for the quarter ended May were lower than expectations. The company said that lower profits were due lower margins as the company was forced to cut prices amid rising competition; in addition the company also sold more low margins consumables in the quarter.
Following the news, the shares plunged 3.2%, at $ 66.91 in midday intra trading.
The Company’s sales soared 9.6 percent to $2.36 billion in the third quarter through May 26, mainly pushed by lower-income shoppers buying items such as milk and food from its small stores.
The Company’s gross margin dropped to 35.8 percent of sales in its third quarter. The pinch of price cuts was offset to some extent by sales of more profitable private brands. Family dollar expects private branding sector will boost its profits in the future.
For the period, Family Dollar earned $124.5 million, or $1.06 per share in its fiscal third quarter, compared to a profit of $111.1 million or 91 cents in the same period, a year earlier.
Family Dollar has faced stiff competition from rivals such as Dollar General Corp (NYSE: DG) and Wal-Mart Stores Inc (NYSE: WMT), both of these companies have been cutting margins in order to gain the market share.
Family Dollar’s same-store sales were below Dollar General’s most recent quarterly same-store performance.
Commenting over Family Dollar’s performance, BB&T Capital Markets analyst Anthony Chukumba said that inconsistency in same stores sales showed it was “easier said than done for Family Dollar” to catch up to Dollar General .
Aiming for higher growth, Family Dollar is now planning to open more stores alongside adding more products to its shelves.
In order to compete with Dollar General and other dollar store chains, Family Dollar recently launched several products such as health and beauty items, PepsiCo drinks, magazines and gift cards, in addition to cigarettes and other tobacco products.
Family Dollar expects its profit in the current quarter will be between 71 cents per share and 81 cents per share, with same-store sales estimated to rise between 5 percent and 7 percent.
Analysts surveyed by Reuters expect earnings of 77 cents per share in present quarter.
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Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.
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