Family Dollar Continues to Strengthen on the Pooring of America

As Target (TGT) shoppers turn into Walmart (WMT) shoppers [Dec 26 2007: Target Shoppers Turning into Walmart Shoppers] - the momentum in the dollar stores appears to continue. Family Dollar (FDO) and Monsanto (MON) were both names of interest [Jan 5: Earnings on Tap this Week] we highlighted this week...

Family Dollar (FDO) - one of the beneficiaries (in theory) of my "Pooring of America" theme (plus first consumer led recession in 25 years). However, this one is no secret and at 15x forward earnings much of this might already be in the stock price

FDO earning's were received very well guidance was also raised; very strange considering the recovery that awaits America by the 2nd half of 2009. You'd think the market would be "looking ahead" and "discounting" Americans running away from dollar stores and back to their old haunts. We can learn a lot by listening to the companies and ignoring pundits and most of these lousy government reports. Notice where Americans are increasingly spending the most - food. (non discretionary) 2/3rds of Family Dollar's sales are "food" categories.

• Besides seeing its core shoppers spend more when they visit, Family Dollar is also attracting more "middle-ish income" customers, Chairman and Chief Executive Howard Levine said during a conference call. (many of these used to be called "aspirational shoppers" - before reality hit)

Yesterday's bounce took FDO back to the top of its recent range - I'd look for that gap to fill back into the $25s; nothing runs away in this market. If wrong, a clear of $29 is an obvious breakout. I wasn't blown away by the earnings myself, but the market loved it. Any company that can raise guidance in this environment sticks out like a sore thumb - we won't have many. We're playing the same theme with pawn shops - Obama ire or not.

This should also bode well for

Dollar Tree (DLTR)

- better chart here

Unlike the punditry with their constant bottom calls, I have a bevy of "tells" I'm waiting on to tell me when the economy is heading for recovery. Among them would be when the charts of dollar stores start to crumble as Americans get back to their free wheeling ways.

• Family Dollar Stores Inc. said Wednesday its fiscal first-quarter earnings jumped 14 percent, beating Wall Street's expectations, as bargain-hunting customers increasingly turned to the discount retailer for food and other necessities.
• Earnings for the quarter ended Nov. 29 rose to $59.3 million, or 42 cents per share, from $51.9 million, or 37 cents per share, for the quarter ended Dec. 1, 2007. Quarterly sales rose 4.2 percent to $1.75 billion, from $1.68 billion in the prior year.
• Analysts surveyed by Thomson Reuters forecast earnings of 40 cents per share on sales of $1.75 billion.
• "As more families face financial challenges in this environment, they are relying on Family Dollar for more of their everyday needs," said Chief Executive Howard R. Levine in a statement. "As a result, we're gaining market share and driving both increased customer traffic and transaction value."
• Same-store sales rose 2.1 percent on greater customer traffic and average transaction value. Same-store sales, or sales at stores opened at least a year, are considered a key measure of a retailer's health.
• The company said sales were strongest in the consumables category, driven mostly by food purchases. Same-store sales for December gained about 6 percent on strong food and toy sales.

Guidance

• For its second quarter, which ends Feb. 28, Family Dollar expects earnings per share to range from 48 cents to 52 cents. The company anticipates a same-store sales increase of 3 percent to 5 percent during the quarter.
• Analysts surveyed by Thomson Reuters forecast second-quarter earnings of 47 cents per share.
• For the full fiscal year ending Aug. 29, Family Dollar expects earnings per share to range from $1.63 to $1.81 based on the continued strong sale of food and other consumable merchandise. Analysts predict fiscal 2009 earnings of $1.69 per share on sales of $7.23 billion.

Disclosure: No position

Comments

[Kevin_S:]

There are seasonal stocks. Expect many ups and downs. I see this stock swinging in the range $22-$31 the next 5 years.

Jan 09 08:51 AM