On Jan 14, 2014, Zacks Investment Research downgraded Family Dollar Stores Inc. (FDO - Analyst Report), the self-service retail discount store chain, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Estimates for Family Dollar have shown a downtrend since the company reported soft first-quarter fiscal 2014 results on Jan 9. The quarterly earnings of 68 cents a share missed the Zacks Consensus Estimate by a penny and dropped 1.4% from 69 cents delivered in the prior-year quarter.
The Matthews, N.C. based company said that comparable-store sales fell 2.8% with customer transactions and average consumer transaction value also declining. Comps faced tough year-over-year consumables comp comparisons. Further, management added that comps for the month of December tumbled 3%, given the uneven economic scenario and tough consumer environment as softness persists in discretionary categories.
However, a 3.2% increase in revenue to $2,499.7 million brought the company respite, though it fell short of the Zacks Consensus Estimate of $2,504 million.
Going forward, Family Dollar, which competes with Dollar General Corporation (DG - Analyst Report), does not see much improvement in macroeconomic trends and as a result lowered its earnings expectations.
Management took a cautious stance while providing guidance for fiscal 2014. Family Dollar now projects earnings in the band of 85 cents to 95 cents a share for the second quarter and between $3.25 and $3.55 per share for fiscal 2014. Earlier, the company had projected earnings in the range of $3.80 to $4.15.
The lower-than-expected results as well as trimmed guidance triggered a downtrend in the Zacks Consensus Estimates, as analysts become less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that fell 13.8% to $3.43 for fiscal 2014 and 9.1% to $4.00 per share for fiscal 2015 in the past 7 days.
Other Stocks that Warrant a Look
Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include The TJX Companies, Inc. (TJX - Analyst Report) and Michael Kors Holdings Limited (KORS - Analyst Report), both of which hold a Zacks Rank #2 (Buy).