Family Dollar Stores Earnings: Fifth Quarter of SHRINKING Margins

S&P 500 (NYSE:SPY) component Family Dollar Stores Inc. (NYSE:FDO) reported its results for the third quarter. Family Dollar Stores operates more than 6,600 retail discount stores across the United States, offering consumables, home products, apparel accessories, seasonal and electronics.

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Family Dollar Stores Inc. Earnings Cheat Sheet

Results: Net income for Family Dollar Stores Inc. rose to $124.5 million ($1.06 per share) vs. $111.1 million (91 cents per share) in the same quarter a year earlier. This marks a rise of 12.1% from the year-earlier quarter.

Revenue: Rose 9.6% to $2.36 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: Family Dollar Stores Inc. fell in line with the mean analyst estimate of $1.06 per share. Analysts were expecting revenue of $2.37 billion.

Quoting Management: “Today, we reported another quarter of strong double-digit earnings growth. I am especially pleased that we delivered these record results even as we launched multiple initiatives late in the quarter to increase our relevancy to the customer and drive greater store productivity,” said Howard R. Levine, Chairman and CEO. “Delivering stronger shareholder returns begins with increasing sales per square foot, and this quarter, we began to implement a number of initiatives to broaden our consumable assortment and satisfy more of our customers’ shopping trips. As planned, most of these initiatives began late in the quarter and had little impact on our third quarter sales results,” continued Levine. “We are on schedule, and I am very pleased with the progress our teams have made in such a short period of time. As we complete most of these initiatives in the fourth quarter, we will have a fully competitive assortment and will be well-positioned to accelerate sales productivity further.”

Key Stats:

Last quarter was the fifth in a row that the company saw shrinking gross margins, as they fell 0.4 percentage point from the year-earlier quarter to 35.8%. Over that time, margins have contracted on average 0.6 percentage point per quarter on a year-over-year basis.

The company has now seen net income rise in three straight quarters. In the second quarter, net income rose 10.7% and in the first quarter, the figure rose 8.1%.

Revenue has risen the past four quarters. Revenue increased 8.6% to $2.46 billion in the second quarter. The figure rose 7.6% in the first quarter from the year earlier and climbed 9.1% in the fourth quarter of the last fiscal year from the year-ago quarter.

The company met estimates last quarter after topping forecasts in the previous quarter with net income of $1.15 versus a mean estimate of net income of $1.13 per share.

Looking Forward: The outlook for the company’s next-quarter results is favorable. The average estimate for the fourth quarter has reached 77 cents, up from 76 cents seven days ago. The average estimate for the fiscal year is $3.67 per share, a rise from $3.65 ninety days ago.

Competitors to Watch: Dollar General Corp., 99 Cents Only Stores, Dollar Tree, Inc., Big Lots, Inc., Wal-Mart Stores, Inc., Target Corporation, Fred’s, Inc., Costco Wholesale Corp., Gordmans Stores, Inc., and Amazing Savings, Inc.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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