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Family Dollar Earnings: An Early Look

By Dan Caplinger - Apr 8, 2013 at 5:50PM

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Can the deep-discount retailer stay ahead of the competition?

Spring is finally here, and a new earnings season is right around the corner. On Wednesday, Family Dollar (FDO.DL) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

The deep-discount industry has seen huge growth in recent years, as a sluggish economic recovery has left millions of Americans behind, struggling to make ends meet. Yet highly competitive conditions in the industry have left Family Dollar fighting with a number of peers for market share. Let's take an early look at what's been happening with Family Dollar over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Family Dollar

 

 

Analyst EPS Estimate

$1.23

Change From Year-Ago EPS

7%

Revenue Estimate

$2.89 billion

Change From Year-Ago Revenue

17.6%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Is Family Dollar's stock its best bargain?
Analysts have gotten more pessimistic about Family Dollar's earnings in recent months, as they've cut their estimates on the just-ended quarter by $0.04 per share and notched $0.09 off full-year fiscal 2013 earnings-per-share figures. The stock has reflected that dour view, dropping 6% since the beginning of the year.

After years of strength, Family Dollar has recently found itself on shakier ground. The same slow economic conditions that led to its strong performance during the 2008 recession continue to exist today, but now, even deep-discount retailers have proven vulnerable to tough times among its customers.

In particular, a combination of rising payroll taxes, higher prices at the pump, and weak employment growth has held spending back among lower-income shoppers. Wal-Mart's tepid 1% rise in same-store sales in the U.S. might have been good news for Family Dollar in years past, but Family Dollar's move toward more food items has put margins under pressure, and the stock hasn't responded favorably.

Perhaps most troubling for Family Dollar are the moves that its competitors are making. Dollar General (DG -2.83%) has done its best to hold off rising competition by aggressively expanding, with plans to open 635 new stores this year. The move could hurt short-term margins, but it throws down the gauntlet for Family Dollar to keep up the pace. Meanwhile, Dollar Tree (DLTR -3.16%) reported surprisingly strong results in its most recent quarter as its cost-cutting bore fruit for investors.

In Family Dollar's quarterly report, watch for the company to address how it plans to respond to Dollar General's aggressive expansion plans. In this increasingly dog-eat-dog industry, Family Dollar can't afford to let its rivals get too far ahead if it wants to retain its leadership position among deep discounters.

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Stocks Mentioned

Family Dollar Stores Inc. Stock Quote
Family Dollar Stores Inc.
FDO.DL
Dollar Tree, Inc. Stock Quote
Dollar Tree, Inc.
DLTR
$156.35 (-3.16%) $-5.10
Dollar General Corporation Stock Quote
Dollar General Corporation
DG
$227.55 (-2.83%) $-6.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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