"We hold ourselves accountable for improving our performance," stated Howard Levine, chairman and CEO of Family Dollar Stores (UNKNOWN:FDO.DL), back in the April 10 earnings release. Yet with the company's most recent report released on July 10, Levine and the other executives proceeded to blame everything and everyone but themselves.
The discounted results
Family Dollar reported fiscal third-quarter results for the period ended on May 31 on July 10. Net sales inched up 3.3% to $2.66 billion. Same-store sales slipped 1.8%. Adjusted earnings dipped 19% to $0.85 per diluted share.
The earnings per share were at the bottom of the guided range of between $0.85 and $0.95 given halfway through the quarter. So what did Levine blame in the earnings release and on the conference call?
He blamed economic challenges.
He blamed an intense competitive environment.
He blamed unemployment.
He blamed government benefit cuts.
He blamed energy prices.
For a company claiming to hold itself accountable, it sure finds plenty of other things to put the blame on. Levine pointed out that the results were "less bad" than the fiscal second quarter in terms of same-store sales, but he forgot to mention that was easy.
Last quarter he stated:
Like many retailers, our second quarter results were significantly affected by severe winter weather, which resulted in numerous store closings, disrupted merchandise deliveries[,] and higher than expected utility and store maintenance expenses.
Obviously it's much easier to show higher same-store sales during times, for example, when stores are actually open for business compared to when stores were closed. It seems a bit misleading to refer to this as "improving trends."
Talk to the General
One excuse that may very well be quite valid is the competitive environment. Dollar General (NYSE:DG) would probably be Family Dollar's No. 1 competitor and has been showing improvement as if it operates in an entirely different sector than Family Dollar.
Dollar General last reported on June 3. Net sales popped 6.8%, same-store sales lifted 1.5%, and diluted earnings per share jumped 7.5%. Dollar General CEO Rick Dreiling stated in the company's press release, "Sales trends began to improve in April and have continued to gain momentum."
Instead of "less bad," Dollar General saw more positive. It was the 25th straight quarter of positive same-store sales gains for Dollar General. Based on this, the environment for both Family Dollar and Dollar General is obviously not impossible to show gains in. Maybe Dollar General is just gaining market share at Family Dollar's expense.
Permanently? Levine should choose his words more wisely. Thanks to Uncle Sam's printing press, there is no such thing as permanent long term of anything when it comes to prices. Still, it's encouraging that Family Dollar is finding ways to get customers back in the door.
The strongest growth area was with refrigerated/frozen food and tobacco, which are part of the consumable category. Dollar General and Dollar Tree as well are both finding particular strength in this area and have been expanding their offerings in the recent quarters and years. Family Dollar is in the process of expanding its beer and wine selections as well.
Family Dollar Stores is down but not out. There is money to be made in this industry, and hopefully when Levine blames outside forces for his company's struggles, he is only doing so to comfort shareholders. Internally, if the buck truly stops with himself and his team, we should see steadily improving and real same-store sales growth in the quarters ahead.