Discount retailer Family Dollar Stores Inc. (FDO) reported Wednesday a higher profit for its second-quarter, but below Street estimates, reflecting stronger sales of lower-margin consumables. Sales were higher on comparable sales and in line with market view. Citing financial pressures and unseasonably cold spring weather, the company trimmed its fiscal 2013 earnings forecast, which is below estimates.
In the pre-market, Family Dollar shares declined $2.70 or 4.52 percent, and are currently trading at $57.10.
In its 14-week second quarter, the company's net income rose to $140.15 million from $136.42 million in the 13-week quarter a year ago. Earnings per share increased 5.2 percent to $1.21 from prior year's $1.15. The extra week contributed approximately $0.07 of earnings per share.
On average, 26 analysts polled by Thomson Reuters expected the company to report earnings of $1.23 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales climbed 17.7 percent to $2.89 billion from $2.46 billion in the previous year, partly benefited by about $189 million from the extra week. Twenty two analysts expected revenue of $2.89 billion.
Consumables category was stronger, with 26.6 percent increase, owing to strong growth in tobacco, food, and health and beauty aids.
Comparable store sales for the 14-week period increased 2.9 percent on higher traffic and increase in the average customer transaction value. The sales growth comprised of a 2.5 percent increase in the month of December, 6.9 percent in January on a 4-week comparison, and a 4.2 percent increase in February.
Gross profit increased 12.8 percent, while gross margin declined to 33.4 percent from prior year's 34.9 percent. As a percentage of sales, the impact of stronger sales of lower-margin consumables and increased inventory shrinkage was partially offset by lower freight expense and higher purchase markups, the company said.
Looking ahead to the third quarter, Family Dollar projects earnings between $0.98 and $1.08 per share, compared to last year's $1.06 per share, while analysts project earnings of $1.18 per share. The company anticipates that many of the sales and margin trends that occurred in the first half of the year will continue in the third quarter.
For the fourth quarter, Family Dollar expects earnings between $0.85 and $0.95 per share, compared to $0.69 per share a year ago, and also projects higher operating margin.
According to the firm, sales in more discretionary categories will continue to be pressured in the second half and that comps in the second half will increase between 2 percent and 4 percent. Comps in the third quarter will be in the lower end of this range, while it will be in the upper end of this range in the fourth quarter.
The company now expects 2013 earnings per share to be between $3.73 and $3.93, compared to prior estimate of $3.95 and $4.20 per share. In the year 2012, earnings were $3.58 per share. The outlook assumes comparable store sales growth of 3 percent and 4 percent. Analysts expects earnings of $3.98 per share for fiscal 2013.
CEO Howard Levine said in view of the financial pressures to customers and cold spring weather, it expects lower than expected Home and Apparel sales.
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