Family Dollar Stores Sees Earnings Surge

Apr. 7.10 | About: Family Dollar (FDO)

Family Dollar Stores, Inc. (NYSE:FDO) has posted better-than-expected second-quarter 2010 results due to robust sales witnessed in the Seasonal and Electronics, Home Products and Consumable categories.

The quarterly earnings of 81 cents a share surpassed the Zacks Consensus Estimate of 78 cents, and jumped 35% from 60 cents delivered in the prior-year quarter. Management now expects third-quarter 2010 earnings between 71 cents and 76 cents a share, and fiscal 2010 earnings between $2.48 and $2.58.

The current Zacks Consensus Estimate for the third-quarter 2010 is 70 cents and for fiscal 2010 it is $2.47 per share. We can expect some upward estimate revisions following the company's improved guidance.

Family Dollar’s strategic initiatives to improve merchandising and store operations have helped grow the top and bottom lines. The company's shares rose $1.66, or 4.4%, to $39.45 in pre-market trading.

The operator of self-service retail discount store chains posted a 4.9% year-on-year increase in revenue to $2,090.2 million due to the rise in sales registered across Seasonal and Electronics categories (up 6.9%), Home Products (up 6.1%) and Consumables categories (up 5.1%) partially offset by lower sales experienced in Apparel and Accessories (down 0.2%).

Gross margin also expanded 170 basis points to 35.4%.

The company’s point-of-sale technology and store realignment initiatives better positions it to drive traffic, meet customer-oriented demand and improve in-store shopping experience. Consumers with lower disposable income are now prioritizing their purchases and looking for low-priced options. The company trades in merchandise generally priced between under $1 and $10.

Based in Matthews, North Carolina, Family Dollar said that comparable-stores sales are on the rise due to improve traffic counts and increase in average transaction value. After increasing 2.4% in the first-quarter 2010, comps jumped to 3.6% in the quarter under review. Comps in third-quarter 2010 are faring better with sales up 11% in March due to an early Easter. Management predicts third-quarter 2010 comps to increase by 6% to 8%.

The company ended second-quarter 2010 with cash and cash equivalents of $502.6 million, long-term debt of $250 million and shareholders’ equity of $1,429 million. Capital expenditures for first-half 2010 were $82.9 million. During the first half of its current fiscal year, the company has bought back nearly 4.1 million shares, and still had an authorization to buy back up to an additional $296 million of stock, as of February 27, 2010.

During the first half of fiscal 2010, Family Dollar opened 86 stores and closed 52 stores. The company currently operates a chain of 6,689 stores in 44 states.