Family Dollar Issues Lower Guidance as Earnings Dip

Family Dollar (NYSE: FDO  ) reported earnings today for the first quarter of its 2014 fiscal year, and it saw its net sales increase by 3.2% to $2.5 billion, however its comparable-store sales dropped by 2.8%.

The company highlighted that the sales in its consumables category increased by 4.7% as refrigerated and frozen food, health aids, and tobacco largely drove the growth, however its comparable-store sales fell due to fewer transactions and the average value of the transactions declining.

Family Dollar saw its earnings dip from $0.69 per share in the year-ago quarter, to $0.68 per share in the most recent quarter. While the gross profit margin increased from 34.1% of sales to 34.3% of sales, the company saw its selling, general and administrative (SG&A) expenses jump by nearly $37 million, and its operating profit fall by $6.5 million. The company noted that on an average per-square-foot basis its SG&A expenses fell by 1.4%.

In total, net income at Family Dollar fell to $78 million from $80.3 million as reported in the first quarter of its 2013 fiscal year.

"Today, we reported sales and earnings for the first quarter of fiscal 2014 that were in-line with our previously provided guidance," said Family Dollar Chairman and CEO Howard R. Levine in the company press release. "In addition, our core customers continued to face economic uncertainties, and the promotional environment intensified. While the top line was pressured, we expanded gross margin and managed inventory levels well. In addition, we continued to make progress in our longer-term initiatives."

Family Dollar's first fiscal quarter ended Nov. 30.

Family Dollar issued lower guidance for upcoming quarters and noted it expected to continue to see comparable-store sales declining in a low-to-mid single digit range. It also announced that it anticipates that its earnings will fall from $1.21 per share in the second quarter of fiscal 2013 to between $0.85 and $0.95 per share in the second quarter of fiscal 2014. However, of that decline $0.07 will be attributable to the additional week in the comparable quarter last year.

Family Dollar also dramatically lowered its guidance for the full 2014 fiscal year, from the previous estimate of EPS between $3.80 and $4.15 to a range of $3.25 to $3.55.

Levine said that "[r]eflecting our December results, our expectations that the macroeconomic trends will continue, and the impact of investments we plan to make to strengthen our value proposition, we have lowered our earnings expectations for the second quarter of fiscal 2014 and the full year." The company said comparable-stores sales for December decreased about 3%, driven by a decline in customer transactions.

"While we have made meaningful progress to improve our execution, our financial performance has not met our expectations," said Levine. "We have a great business model and ample growth opportunity, and I know we can do better."

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