Family Dollar's Earnings Results Fall A Touch Short

| About: Family Dollar (FDO)

Low-end retailer Family Dollar (NYSE:FDO) reported results for its fiscal year 2012 third quarter that were mostly in line with expectations. Family Dollar earned $1.06 per share, a penny shy of expectations, but sales were in line, growing 9.6% to $2.36 billion. Same-store sales grew 5%, which represented the low end of the firm's guidance range. We think shares are fairly valued at current prices.

Although growth seems to be slightly decelerating at Family Dollar, the firm still guided to same-store sales growth of 5%-7% in its fourth quarter, which several companies would love to achieve in this tough retail environment. The firm also guided to earnings of $0.71-$0.81 per share, compared to earnings of $0.66 in its fiscal year 2011 fourth quarter. Furthermore, the company will still have opened around 400 net new stores in fiscal year 2012.

We think the dollar-store sector -- which includes companies such as Dollar General (NYSE:DG), Dollar Tree (NASDAQ:DLTR), and Family Dollar -- will continue to perform well as long as unemployment remains above historical levels. However, more competitive pricing from Wal-Mart (NYSE:WMT) could pressure the sector. We could also see low-end consumers "trade up" to Wal-mart and Target (NYSE:TGT), thanks to lower fuel costs and macroeconomic acceleration.

Family Dollar trades at the high end of our fair value range, so we don't find shares very compelling at current levels. In fact, we don't find any of the names in the dollar-store segment very attractive, as most trade above or near the high end of our intrinsic value estimates.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.