Here's What Carl Icahn Sees in Family Dollar

Family Dollar is quickly falling behind its competitors, but there's enough hidden beneath the surface that the retailer gained favor with one of the world's most well-known activist investors. Here's why.

Jun 11, 2014 at 10:36AM

Activist investor Carl Icahn is widely regarded as an investor who knows what he wants and goes after it. After several high-profile investments in top tech companies in which he put pressure on management to pursue new strategic directions, he's set a new target. This time, Icahn has his sights set on discount retailer Family Dollar Stores (NYSE:FDO).

It may seem like targeting Family Dollar is a curious choice for Icahn, since on the surface it doesn't look like it falls in line with his other investments. After all, Family Dollar is a fairly small retailer that certainly doesn't share much in common with the mammoth technology companies he's invested in recently.

But beneath the surface, Family Dollar does share similar qualities with many other Icahn-worthy companies. It's struggling to perform in an industry with strong fundamental economics. Indeed, Family Dollar just can't seem to get out of its own way, while other dollar stores like Dollar Tree Stores (NASDAQ:DLTR) continue to rack up impressive results.

Add to that the fact that Family Dollar just underwent a management shakeup that could leave it vulnerable. As a result, it's clear that if Icahn is looking for wounded prey, Family Dollar is actually a great choice.

Family Dollar's woes leave it vulnerable
In a slow-growth economy marked by stagnant wages, you'd think the millions of perpetually cash-strapped consumers would create an ideal environment for deep-discount retailers. Others in the industry, like Dollar Tree, are thriving.

Dollar Tree just posted record first-quarter results. Overall, its same-store sales growth, or growth at stores open for at least one year, clocked in at 2%, and it also reported 7% growth in net sales. Meanwhile, its earnings per share rose 13% last quarter. This is resulting in huge amounts of cash, which the company is showering on investors in the form of share buybacks.

Dollar Tree bought back $1 billion of its own stock over the past year and has another $1 billion remaining in its current share-repurchase authorization.

By contrast, Family Dollar can't seem to get anything right. It's simply off to a terrible start to the year, despite a relatively favorable climate for this type of business. Its first-quarter comparable-store sales fell by 2.8%. Making matters worse was an ensuing management shakeup. After its earnings report, Family Dollar announced that its president and chief operating officer would leave the company to "pursue other interests," without offering any specifics beyond that.

The company followed this up with a total dud in the next quarter, as Family Dollar's second-quarter results were even worse. Same-store sales declined 3.8%, and profits fell by 33% year over year.

The time is right
All these problems are exactly why Family Dollar is ripe for the picking. Carl Icahn reported a 9.39% stake in the company and will pursue strategic change as well as board seats, according to The Wall Street Journal. The timing is perfect for Icahn to try to get people he approves of on the company's board of directors. That will then allow him to exert even more pressure on the company to do something drastic, such as pursue a sale to a competitor.

Family Dollar would have a hard time trying to convince shareholders to reject a sale, considering how poorly the stock has performed over the past year. Shares had lost about 14% year to date prior to the news of Icahn's investment.

Rumors have it that Icahn will push Family Dollar to try to sell itself to Dollar General. In response, Family Dollar has adopted a "poison pill" designed to rebuff Icahn. Should the noted investor accumulate 10% of the company, Family Dollar will issue dilutive new shares.

Although Icahn has plenty of critics, he also holds a fairly good track record of getting what he wants, whether immediately or eventually. Family Dollar shares rose 13% on the news of his investment, implying a broad sense of optimism that a turnaround will materialize. Buckle your seat belts, Family Dollar investors: It's going to be an interesting ride.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.


Bob Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers