Family Dollar (NYSE:FDO) is scheduled to release earnings before the market opens tomorrow. The discount retailer hopes its results won't leave investors feeling short-changed. Here's a breakdown of what to expect.

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts follow the company. Five recommend a buy, two say sell, and 12 are advising investors to stay put, with a hold rating.
  • Revenue. Analysts expect $1.64 billion in revenue, 4% higher than a year ago.
  • Earnings. The consensus earnings estimate is $0.25 a share, which is $0.01 below earnings in the prior year's comparable quarter.

What management says:
The company recently began adding refrigerators and freezers to its stores, and the increased product offerings that they made possible helped boost sales. But the benefits on the top line came at the expense of margins, since these products aren't as profitable. Last quarter, the company was aggressive with markdowns, in an attempt to position itself to boast fresher merchandise and improve seasonal items. Management addressed the difficult macro economy but believes that despite these challenges, it is making progress.

What management does:
Of course, one of the best ways to see whether it's actually making the progress it claims is to glance through the margins. Gross profits have been on the rise, and management cited strong sales of higher-margin merchandise and more favorable mark-ups as the reason.

Margin

2/25/06

5/27/06

8/26/06

11/25/06

3/3/07

6/2/07

Gross

33.0%

33.0%

33.1%

33.4%

33.5%

33.8%

Operating    

5.6%

5.6%

5.7%

5.7%

5.7%

5.6%

Net

3.1%

3.1%

3.1%

3.1%

3.5%

3.5%
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:
Even though Family Dollar believes it can continue to improve through an economy that features rising fuel and food prices and a busted-up housing market, I have trouble believing that the company's initiatives will soon materially affect the bottom line. As the numbers show, Family Dollar has done a fine job of expanding margins over the past few quarters, but I question how long the expansion can continue, given current external factors. And I doubt that I'm alone with this theory, given that the stock is trading 19% lower than it was just three months ago.

We've already witnessed how larger discount retailers such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are seeing weakness. So if these two gargantuan companies are feeling a bit of pain, I'm not sure how well a much smaller rival can combat this economic environment.

For more retail Foolishness: