Back to top

Analyst Blog

Shares of discount store chain Family Dollar Stores Inc. (FDO - Analyst Report) slipped 1.9% on April 11 to hit a 52-week low of $55.69, primarily driven by dismal second-quarter fiscal 2014 results on the previous day. Both the earnings and net sales fell short of the respective Zacks Consensus Estimate.

Management blamed the debacle on harsh weather conditions that resulted in store closures, erratic merchandise delivery, and increase in utility and store maintenance costs. Owing to these headwinds, Family Dollar’s earnings of 80 cents a share plunged nearly 34% year over year.

The company, which competes with Dollar General Corp. (DG - Analyst Report), posted a 6.1% yearly decrease in net sales to $2,716.6 million. Sales declined across the company’s Consumables, Home Products, Apparel and Accessories and Seasonal & Electronics segments. Gross profit and margin also shriveled during the quarter.

Battered by disappointing results, the company anticipates comparable store sales to decline by a low single digit in the next reportable quarter. Also, in sync with the company’s guidance, the current Zacks Consensus Estimate for the third quarter and for fiscal 2014 witnessed a downtrend of 10.2% and 7.6% to 88 cents and $3.15, respectively, in the last 7 days.

This Zacks Rank #5 (Strong Sell) stock currently trades at a forward P/E of 16.4x, a 0.7% premium to the peer group average, signifying further downside potential. Also, the company has long-term projected earnings per share (EPS) growth rate of 9.8%, relatively lower than the peer group average of 12.3%, depicting weakness in the company.

With a challenging macroeconomic environment, consumers are expected to remain cautious on their discretionary spending. Consequently, we could see more competitive pricing and newer products on the shop-floor to entice shoppers. However, a possible price war would definitely erode margins, which in turn would further affect the company’s results.

Other better-ranked stocks in the retail sector include Barnes & Noble, Inc. (BKS - Snapshot Report) and Bon-Ton Stores Inc. (BONT), both holding a Zacks Rank #1 (Strong Buy).
 

Read the Full Research Report on FDO
Read the Full Research Report on DG
Read the Full Research Report on BKS
Read the Full Research Report on BONT


Zacks Investment Research

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%