Discount chain Family Dollar
As it has installed refrigerators and freezers in its stores to sell more consumable items, sales have grown accordingly. The dollar-store retailer rang up sales of $1.95 billion for the quarter, generating net income of $90.5 million. This was 66% greater than that recorded last year, but in line with analyst expectations. Yet the consumables are lower-margin items for Family Dollar, and as they grow in size, the company expects its margins to be squeezed some this year.
The dollar-a-deal distributor has also had to contend with weak same-store sales, which are sales at stores open for at least a year. They barely nudged upward 0.4% for the quarter, although results were helped by an increase in sales per square foot to $79.7 in the first half of the year.
To deal with tighter margins and weak store traffic, Family Dollar plans to focus on better purchase mark-ups, lower inventory shrinkage (theft), and lower manager turnover.
The company has a large urban presence, which helps it focus more on the lower-income wage earners who frequent its stores. In comparison, Dollar General
While Family Dollar is executing well and doing the things necessary to keep expanding its base, its stock doesn't offer a discount to investors. With a market multiple of 22, it trades in line with competitors Dollar Tree
That may come, though. The discount chain said it was going to resume its share buyback program; the program had been suspended when Family Dollar launched an internal investigation into its stock-option grants program. After finding errors in its practices, it took a $10.5 million charge in the quarter, but now says it will begin repurchasing its stock again and may buy as many as 6 million shares.
Along with growing profits -- albeit with thinner margins -- it could boost shareholder returns. And that might thaw Family Dollar's stock price, which has been essentially frozen for the past six months.