Family Dollar Stores, Inc. (FDO) Earnings Preview

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Analysts at Citi Research projected that the financial performance of Family Dollar Stores, Inc. (NYSE:FDO) for the third quarter of 2013 will be modest or in line with the consensus estimate of Wall Street analysts.

Family Dollar Stores, Inc. (FDO) Earnings Preview

Family Dollar EPS Estimates

Citi Research analysts Deborah Weinswig and Nathan Rich estimated that Family Dollar Stores, Inc. (NYSE:FDO) would achieve an earnings per share (EPS) of $1.03, which is in line with the consensus estimate and guidance at $0.98 to $1.08 per share.

According to the analysts, SG&A leverage and share repurchases offset the pressure in gross margin and weak SSS. Weinwig and Rich said, “We believe that expectations for the quarter are relatively modest, as management highlighted the pressure facing its core customer.”

During its last EPS call, the management of Family Dollar reduces its guidance for full year fiscal 2013 from $3.95 to $4.20 to $3.73-$3.93.

Weinswig and Rich and projected that the SSS of Family Dollar Stores, Inc. (NYSE:FDO) for the third quarter would increase by 2% compared with the guidance for the low-end of +2 to 4%  and the consensus at +2.4%. The analysts believed that the company’s sales were affected by the poor performance of apparel and home products as well as weak seasonal sales because of colder weather.

Customer Traffic Increased Due to Consumable Products

The analysts noted Federal Dollar increased its customer traffic due to the roll out of tobacco and consumables products, which hurt Walgreen Company (NYSE:WAG) by 100 bps. Weinswig and Rich expect mix pressures on the FDO’s gross margin due to strong sales from tobacco. In addition, the analysts perceived inventory risks from soft seasonal sales, however they believe that markdowns and reduced receipts by $100 million in the second quarter mitigate margin pressure.

The analysts explained that their third quarter EPS estimate for Family Dollar Stores, Inc. (NYSE:FDO) was based on SSS of +2% (vs. consensus of +2.4%), (-130) bps gross margin rate decline YOY to 34.5% of sales (vs. consensus of 34.7%), and SG&A expense (inc. D&A) leverage of +29 bps to 27.3% of sales. Weinswig and Rich also projected that the company would experience a 7.2% decline in operating margin and anticipates a shares repurchase worth around $50 million.

Shares of Family Dollar Stores, Inc. (NYSE:FDO) are trading around $63.95 per share, down by nearly 1%  after trading hours on Tuesday.

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