Family Dollar Store Does Better Than Expected

Family Dollar Stores, Inc. (FDO), the operator of retail discount stores, recently reported better-than-expected fourth quarter 2009 results with a low single-digit growth in the top-line, and a surprise double-digit growth in the bottom-line driven by effective cost and inventory management, and a lower effective tax rate.

Family Dollar’s quarterly earnings of 43 cents a share surpassed the Zacks Consensus Estimate of 41 cents, and climbed 13.2% year-on-year from 38 cents reported in the prior-year quarter. Management now expects first quarter 2010 earnings in the range of 45 cents to 50 cents.

The company posted a 2.6% increase in revenue to $1,811.4 million due to robust sales registered in the consumables categories (up 6.7%), offset by lower sales experienced in home products (down 4.7%), apparel and accessories (down 7.7%), and seasonal and electronics categories (down 0.7%).

Family Dollar has been making changes in the layout of its stores to accommodate more food and other consumable items to drive traffic. Cash-strapped consumers are now prioritizing their purchases and looking for low priced options. The company sells most of its merchandise at very low prices. Management forecasts a 5% to 7% rise in net sales in the first quarter of 2010.

Although comparable stores sales inched up 1% in the quarter under review, the rate of increase decelerated drastically from the third quarter 2009 when comps increased 6.2%. In the year-ago quarter, comps were up 5.6%. However, comps in the first quarter of 2010 are faring better with sales up 5% in the month of September. Management predicts first quarter 2010 comps to increase between 3% and 5%.

For the fiscal year 2010, Family Dollar expects net sales to rise 5% to 7%, comps to increase 3% to 5%, and earnings in the range of $2.15 to $2.35 per share.

The company ended the fiscal year 2009 with cash and cash equivalents of $438.9 million, and generated $529.9 million in operating cash flow. Capital expenditures for the year were $155.4 million. Management expects capital expenditures in the range of $160 million to $180 million for the fiscal year 2010.

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