Discount chain Family Dollar (NYSE:FDO) will report Q2 2007 financial results on Thursday, March 29.

What analysts say:

  • Buy, sell, or waffle? The gaggle of 21 analysts following Family Dollar is all over the place with their recommendations: 11 say hold, seven rate it a buy, and three say sell.
  • Revenues. Sales at the cheap-goods retailer are expected to grow 12% to $1.9 billion.
  • Earnings. Profits are also expected to grow a commensurate 13% to $0.60 per share.

What management says:
While the analysts have conformed their predictions to management's preannouncement of results earlier this month, analysts have been steadily downgrading their expectations. Just two months ago, they were predicting $1.96 billion in sales and $0.62 per share in profits. But they shored up those estimates as it became clear that charges and expenses would eat into earnings, while same-store sales would be weak. Even with an extra week in the reporting period that boosted sales 12% higher, comps were off by half of a percentage point.

What management does:
Family Dollar decided to review its stock options grant program. This will cost about $12 million and pull earnings toward the lower end of the company's previous guidance of $0.58 to $0.64 per share. With 6,300 stores, Family Dollar is the second largest dollar store behind Dollar General (NYSE:DG). An earlier recognition of a need to change led it to install refrigerators and freezers in its stores several years ago. That helped it to post $6.4 billion in sales last year and notch same-store sales increases generally higher than the competition.

Margin

11/05

02/06

05/06

08/06

11/06

Gross

33.0%

33.0%

33.0%

33.1%

33.4%

Operating

5.8%

5.8%

5.8%

5.8%

5.9%

Net

3.6%

3.1%

3.1%

3.2%

3.2%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The stock options review is a temporary diversion for Family Dollar, which has been performing well and has seen its stock price rise accordingly. It trades well within the multiples of competitors like Dollar Tree (NASDAQ:DLTR) and Fred's (NASDAQ:FRED). Should it see its multiples expand towards the values Dollar General is being bought for, investors would likely see their investment markedly improve.

Related Foolishness:

Family Dollar has earned a three-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. Family Dollar is a Motley Fool Stock Advisor selection. Dollar Tree is a former Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.