We upgrade our recommendation on Family Dollar Stores (FDO) to Outperform on the back of strategic initiatives undertaken to improve merchandising and store operations that have inspired top- and bottom-line growth. The company's point-of-sale technology, store realignment and merchandise initiatives are driving traffic. These helped the company to post healthy fourth-quarter 2012 results.
The quarterly earnings of $0.75 per share jumped 13.6% from the prior-year quarter, whereas net sales climbed 10.8% with comparable-store sales rising 5.4% driven by healthy performance at Consumables, and Seasonal and Electronics categories. For fiscal 2013, management now expects a growth of 13% to 15% in net sales and 12.6% to 20.9% in earnings per share.
Management's 3-to-5 year growth target includes double-digit growth in the bottom-line and store count expansion at a rate of 5% to 7%. Further, the company remains committed towards better price management, cost containment, effective inventory management and private label offering that should drive sales and margin trends.