Yesterday, Family Dollar
Although the quarter was somewhat disappointing, the results really aren't all that surprising. The company had anticipated a difficult Q3 because of pressure on its gross profit margins and on initiatives on which it's been focusing. But it laid the blame for its poor performance on unseasonably cool weather and a difficult economy for its target demographic. Let's get real, though: The company's stores are fairly well spread out, and that at least partially invalidates the weather play.
In approximately 800 stores in major urban markets, Family Dollar continues investing in process changes, technology, and people, and the company plans to expand that initiative to 1,300 of its locations by September. The stores already under improvement have shown consistently higher comp sales growth than the rest of the chain.
The company is also benefiting from its installation of refrigerated coolers in selected stores. It's been such a success that the company plans to double its original plans of 500 stores with coolers to 1,000. By the end of the quarter, 650 stores were already fully stocked.
Looking ahead, Family Dollar expects fiscal fourth-quarter earnings to come in between $0.21 and $0.24 per share. That would be below the $0.25 per share it earned in last year's fourth quarter but in line with expectations of $0.23 per share.
Family Dollar seems to be amidst a transition. In a market with lots of competition, including Dollar General
I think that with such resounding success from its recent initiatives, Family Dollar's short-term struggles can be forgiven. Investors seemed to agree: The company's shares traded 3.3% higher after the earnings report was released. However, that uptick seems a bit generous to me. Though I definitely think Family Dollar is on the right track, I'd rather wait and see whether it can garner continued success through its initiatives and come in at the high end of, or even above, its estimates for the next quarter. But by then, it just may be too expensive to join the family.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article.
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