The just-a-buck retailers are in a funk lately. Dollar General
A difficult sales environment has helped drag Family Dollar's stock down to lows not seen for five years. A glance through its latest quarterly results suggests that fuel-induced challenges will be around for at least a while.
But despite the higher fuel costs that resulted in increased freight expenses, Family Dollar has done an admirable job in stabilizing its gross profit margins, which came in at 31.9%, equivalent to the level achieved a year ago. However, selling, general, and administrative expenses as a percentage of sales moved higher to 28.6%, from last year's mark of 27% -- attributable in part to lower-than-expected revenues.
Net sales for the period were higher by 8%, below Dollar Tree's revenue growth of 9.2% and Dollar General's 12.5% for the most recent quarter. The company's full-year revenues increased 10.3% over fiscal 2004, with slightly higher inventory growth of 11.3%.
Because of lower revenues and increased operating expenses, net income for the year declined 15.7% from fiscal 2004. With its stock currently sitting near $20, it's trading at roughly 15 times its fiscal 2005 earnings per diluted share of $1.30.
Given the growth challenges the company faces (as evidenced in the flat comparable-store sales), this stock can hardly be considered a steal. However, with no debt, a healthy amount of cash, and a slight inflow of free cash for the year, the company does stand in a good position to improve. If Family Dollar can get some macroeconomic help -- namely, lower fuel costs -- then a purchase here might be a good investment. Keeping this uncertainty in mind, a prospective investor would be Foolish to determine a "wish" price at which you would like to start a position in the company, and then wait to see whether the market presents further buying opportunities.
Read on for related Foolishness:
- Family Dollar Plans for Success
- Are Dollar Stores Approaching Saturation?
- Earning Pennies on the Dollar
Dollar Tree is a Motley Fool Inside Value recommendation.
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.