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Family Dollar's Earnings: Investors Should Stay Away

William Bias profile picture
William Bias


  • Family Dollar’s revenue expanded slightly due to the opening of stores, but net income and free cash flow declined.
  • Family Dollar’s low debt balance sheet serves as a small bright spot.
  • Family Dollar’s dividend hasn’t been sustained by free cash flow for three years.

On Jan. 8, dollar discount chain Family Dollar (NYSE: NYSE:FDO) came out with its Q1 FY 2015 earnings announcement. The company performed terribly. Let's take a look to see what's going on with the company.

Revenue expanded slightly

In the most recent quarter, Family Dollar saw its sales increase 2.3% year-over-year. This is mostly due to the opening of new stores. Family Dollar saw its same store sales drop 0.4% giving indication that it's having a hard time getting customers to come through the doors. Driving sales and profitability through expansion is one thing. However, the company needs to make sure its established network of stores keep customers happy.

Net income declined

Family Dollar's net income declined a whopping 47% as it continues to lower prices on its merchandise to meet the competition. Also, its questionable strategy of introducing lower margin "consumables" into its merchandise line up, such as tobacco and food, served as a drag on net income. Family Dollar needs to figure out how to cater to consumers' increasing health consciousness rather than going against that trend. Also, merger fees pertaining to possible mergers served as a drag on net income.

Free cash flow negative

Family Dollar's free cash flow deficit expanded 127% due to the timing of the payments toward its accounts payable which suggests that this may be a temporary seasonal thing. Hopefully, Family Dollar will be free cash flow positive for the full year.

Decent balance sheet

Family Dollar maintains a decent balance sheet. Its $213 million in cash and short-term investments equates to 13% of stockholder equity in the last quarter. My personal preference is that companies maintain a cash balance equating to 20% or more of stockholder equity to get them through tough times. Family Dollar's long-term debt also equates to 18% of stockholder equity which lies below my personal

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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Comments (2)

The company is a dog, horrible culture internally, starts at the top and runs all the way down out out through their vendors, shady developers, etc
Benjamin Saxon profile picture
yep, this one will go down hard when the overall market adjusts to reality.
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