Though I have never set foot in one, I have always wondered about the viability of Family Dollar
Swimming with all those sharks doesn't sound like a recipe for success, but recent results show that the Family Dollar is doing just fine, even without my family's dollars. For the second quarter, sales rose 11.4% to $1.4 billion, and profits climbed 12%, meaning that the $0.47 per share beat analysts' predictions by the ever-popular penny.
Looking forward to the second half of the year, the firm sees EPS growing by 15%, on the back of a hoped-for 3%-5% rise in same-store sales. That may be wishful thinking, as comps for the latest quarter came in at only 2.2%, which is about half of what creeping competitor Wal-Mart has posted lately.
Investors seem to have curbed their enthusiasm for the shares, as the stock has been sliding back toward its 52-week low of around $30. That still looks a little rich. Sure, Family Dollar has a clean balance sheet and higher gross margins than most of its competitors, but with revenue increases built primarily on new stores, you have to wonder just how far it can expand.
Management has recently highlighted a new store-opening strategy that will shift emphasis from urban areas to small and mid-sized towns. Sounds like Wal-Mart's turf to me. Investors will want to keep an eye open to make sure that Family Dollar's plans for growth aren't trimmed by the world's toughest competitor.
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