Discount retail chain Family Dollar Stores, Inc. (FDO) reported Wednesday that its fourth-quarter profit increased 13%, beating market projections, driven by margin improvements and higher comparable store sales. Further, The Charlotte, North Carolina-based company issued first-quarter and fiscal 2010 earnings and sales growth forecast.
Howard Levine, Chairman and Chief Executive Officer, stated, "Despite the challenges resulting from a rapidly changing economic environment, our team has delivered a strong performance this year, driving improvements across most key metrics, including increased customer traffic, operating margin expansion, earnings-per-share growth, greater inventory productivity and higher employee retention."
Fourth-quarter net income grew to $60.12 million from $53.15 million last year. On a per share basis, earnings rose 13.2% to $0.43 from prior year's $0.38.
On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $0.41 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales, as reported in early September, rose 2.6% to $1.811 billion from $1.767 billion in the prior-year quarter, in line with sixteen Wall Street analysts' consensus estimate of $1.81 billion. Fourth-quarter comparable store sales increased 1%, driven by an increase in customer traffic, as measured by the number of register transactions.
Segment-wise, Consumables category recorded strongest sales in the quarter, with sales of $1.20 billion, up 6.7% from the previous year. Meanwhile, Home products sales dropped 4.7% year-over-year to $216.97 million, and sales from Apparel and accessories fell 7.7% to $211.15 million. In the quarter, Seasonal and electronics sales edged down 0.7% from last year to $184.01 million.
Total gross profit was $625.26 million or 34.5% of total sales, up from $581.25 million or 32.9% of total sales a year ago. The company attributed the growth in gross margin to lower freight expense, lower inventory shrinkage and higher purchase mark-ups, which more than offset stronger sales of lower-margin consumable merchandise.
Operating profit went up to $91.75 million or 5% of total sales from $82.10 million or 4.6% of total sales in the same period last year. Selling, general & administrative expenses in the fourth quarter increased 6.9% to $533.51 million from $499.16 million in the fourth quarter of fiscal 2008.
During the fourth quarter of fiscal 2009, the company opened 32 stores and closed 31 stores.
Commenting on the results, Levine stated, "The fourth quarter was our most challenging quarter this year. Not only did we anniversary the effect of last year's stimulus package, but we also re-merchandised the sales floor in approximately half our chain during the quarter. While our ambitious pace did pressure SG&A expenses in the quarter, I believe that these investments support our continued efforts to expand our assortment of key traffic-driving consumables and improve the in-store shopping experience."
In the preceding third quarter, Family Dollar had posted a rise in net income to $87.7 million or $0.62 per share, propelled by consumer traffic growth and strong consumables category performance. Quarterly net sales advanced to $1.84 billion from the previous year's $1.70 billion, with comparable store sales growth of 6.2%. The company's consumables category generated 12.6% growth in net sales to $1.20 billion, and home products witnessed 3.4% rise in the net sales to $237.4 million.
Among others in the field, Dollar Tree Inc. (DLTR) is slated to release its third-quarter earnings results on November 24. The Chesapeake, Virginia-based discount stores operator forecasts third-quarter earnings in the range of $0.58 to $0.64 per share, on sales of $1.19 billion - $2.13 billion, based on low-to-mid single digit positive comparable store sales. Analysts project earnings of $0.62 per share for the quarter on revenues of $1.22 billion.
Discount-store retailer Target Corp. (TGT) is slated to release its third-quarter earnings on November 17, with analysts projecting earnings of $0.44 per share, on revenues of $15.13 billion. The company had earlier noted that its sales remained challenging, however, it continued to experience favorable gross margin performance within categories and disciplined expense control in its retail segment, as well as modestly improving risk trends in its credit card segment.
Bentonville, Arkansas-based retail giant Wal-Mart Stores, Inc. (WMT) is slated to release its third-quarter results on November 12, with analysts projecting earnings of $0.81 per share on revenues of $100.14 billion.
For the fiscal year 2009, Family Dollar, a Fortune 500 company, reported that net income increased 25% to $291.27 million from $233.07 million for fiscal 2008. Earnings per share were up 24.7% to $2.07 from $1.66 last year. As previously reported, sales for fiscal 2009 were $7.401 billion, up 6% from $6.984 billion in the previous year, and comparable stores sales increased 4%, driven by higher customer traffic and an increase in the value of the average customer transaction. Analysts estimated earnings of $2.05 per share on sales of $7.41 billion.
Segment-wise, sales from Consumables grew 11.8% to $4.76 billion, and Seasonal and electronics sales rose 1.6%, while sales in Home products declined 1.4% and apparel and accessories sales dropped 9.2%.
At the end of fiscal 2009, the company had approximately $438.9 million in cash and cash equivalents, compared to $158.5 million at the end of fiscal 2008.
Moving ahead, Family Dollar estimates that comparable store sales for the September period increased approximately 5%.
For the first quarter, the company expects earnings per share will be between $0.45 and $0.50, compared with $0.42 reported in the first quarter of fiscal 2009. Net sales for the quarter is projected to increase between 5% and 7%, with comparable store sales growth of 3% to 5%. Analysts expect the company to earn $0.47 per share for the quarter, with estimates ranging between $0.44 and $0.51 per share, while revenues are estimated to be $1.85 billion, representing a growth of 5.6% from last year.
For fiscal 2010, Family Dollar expects earnings per share between $2.15 and $2.35. Net sales for the year is expected to grow between 5% and 7%, with an anticipated comparable store sales increase of 3% to 5%. Analysts project earnings of $2.25 per share, with estimates ranging between $2.17 and $2.45 per share, on a sales estimate of $7.74 billion.
The company added that it plans to open approximately 200 new stores, and capital expenditures for fiscal 2010 are expected to be between $160 million and $180 million.
Commenting on the outlook for fiscal 2010, Levine said, "While predicting near-term economic conditions remains difficult, we believe that the current consumer focus on saving money will remain strong in 2010. Our strategy of providing value and convenience positions us well to deliver sustainable growth for our shareholders as the economy stabilizes and improves."
In a latest development, Family Dollar said it learned that the United States Supreme Court exercised its discretion not to review Janice Morgan, et al. v. Family Dollar Stores, Inc. The company said it was disappointed at the court's decision as it, along with the National Retail Federation and the U.S. Chamber of Commerce, believes that the issues presented in this case were important for the Court to consider. The company added that it anticipates that the Supreme Court's decision not to hear the case will not have a material impact on its financial condition, as it believes it has appropriately reserved for this contingency.
Beginning with one store in 1959, Family Dollar now operates a chain of self-service retail discount stores for low to lower-middle income consumers in the US. The company offers consumables, home products, apparel and accessories, and seasonal and electronics. The company operated 6,655 stores in 44 states as of August 29, 2009.
FDO increased $1.31 or 4.60% in the pre-market activity, and is currently trading at $29.79. In the past 52 weeks, shares have been trading between $19.70 and $35.00.
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