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On Mar 1, 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 it 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, NC-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 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.

A 3.2% increase in revenues to $2,499.7 million brought some respite. However, the top line 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 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 Estimate, as analysts become less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate, which fell 14.3% to $3.42 for fiscal 2014 and 12.7% to $3.84 for fiscal 2015 in the past 60 days.

Stocks That Warrant a Look

Better-ranked stocks in the retail sector include Hanesbrands Inc. (HBI - Analyst Report) and Michael Kors Holdings Ltd. (KORS - Analyst Report) with a Zacks Rank #1 (Strong Buy), and Columbia Sportswear Co. (COLM - Snapshot Report) carrying a Zacks Rank #2 (Buy).

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