This article was originally published by GuruFocus
By Sarfaraz A. Khan, Research Assistant: Gohar Yousuf
February 28, 2014
February 28, 2014
The current
economic environment in the U.S., with sluggish economic recovery, slow growth
of the labor market and cautious consumers, seems ripe for the growth of dollar
stores. Despite the favorable business environment, Family
Dollar (FDO) continues to
struggle. The store has disappointed its investors with an earnings miss and a
significant cut in its guidance. Moreover, the COO’s exit has further
exacerbated the situation.
The company’s
shareholders did get some support from Credit Suisse in which the bank suggested that Wal-Mart (WMT) should consider
acquiring Family Dollar. This would give a significant boost to Wal-Mart’s
efforts to expand its small stores. As a result, Family Dollar’s shares rose
1.7% on Wednesday.
Earnings
Miss
In its previous quarterly results which
included the holiday season, Family Dollar ended up giving more discounts to customers
than it had originally planned.
Although the
company’s quarterly sales rose 3.2% to $2.50 billion, its net income dropped
2.8% to $78 million, or $0.68 per share. Family Dollar missed both revenue and
earnings estimates by $10 million and $0.01 per share, respectively.
The company
showed strongest performance in the consumables category, which accounts for
75% of its quarterly sales. In this segment, Family Dollar witnessed a 4.7%
sequential growth in sales. However, this growth was driven largely by low
margin products. Therefore, the company’s income dropped, despite an increase
in revenues.
Moreover, Family Dollar has announced that its
president and chief operating officer, Michael Bloom, has resigned. Family
Dollar has been implementing some significant … read full article at GuruFocus
