Family Dollar Stores Inc. (FDO) reported Wednesday a 19% rise in profit for the third quarter, reflecting strong comparable store sales growth on increased customer traffic. Quarterly earnings per share topped market projections by a penny, while top line came in line with view. The Charlotte, North Carolina-based discount retail chain operator also issued a fourth-quarter earnings outlook and revised its full-year forecast, but both below market estimates.
Family Dollar's third-quarter net income increased to $104.35 million from $87.72 million a year ago. On a per share basis, earnings climbed 24.2% to $0.77 from $0.62 in the previous year. The company was projecting earnings near the upper end of $0.71 to $0.76 per share range.
On average, 25 analysts polled by Thomson Reuters expected the company to report earnings of $0.76 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales, as announced on June 3, were $1.997 billion, up 8.4% from $1.843 billion generated in the third quarter of last year. Twenty two analysts had consensus revenue estimate of $2 billion for the quarter.
Comparable store sales, or sales at stores open at least for one year, increased 7% driven by increased customer traffic, as measured by the number of register transactions. In the quarter, average transaction value was flat. The company noted that sales were strongest in the Seasonal and Electronics and Consumables categories.
In the sequential second quarter, Family Dollar had reported an over 33% year-over-year increase in profit to $112.2 million or $0.81 per share, helped by a 3.6% increase in comparable store sales as well as margin expansion. Second quarter net sales increased 4.9% to $2.09 billion.
Commenting on the third-quarter results, Howard Levine, Chairman and Chief Executive Officer, said, "We continue to deliver greater value for our customers while improving their shopping experience in our stores. As a result, more and more consumers are finding the savings they need at Family Dollar. Our revenue growth has accelerated nicely, and I am pleased to report our ninth consecutive quarter of double-digit earnings per share growth."
Segment-wise, net sales from consumables grew 9.1% to $1.31 billion from $1.20 billion last year, and Home products net sales rose 7.1% to $254.17 million from prior year's $237.38 million. In the quarter, net sales from apparel and accessories went up 3.4% to $226.69 million from last year's $219.19 million, and Seasonal and electronics net sales rose 11.3% to $206.37 million from $185.48 million a year ago.
In the quarter, gross margin grew to 36.57% of total sales from 36.20% of total sales last year, reflecting reductions in markdown expenses and inventory shrinkage. Operating margin went up to 8.52% from 7.54% last year.
Beginning with one store in 1959, Family Dollar, which caters to low to lower-middle income consumers, currently operates 6,724 stores in 44 states as of the end of the third quarter, including 39 new stores opened during the quarter.
Among other discount retailers, Dollar General Corp. (DG) on June 8 reported a nearly 64% growth in first quarter profit to $136 million or $0.39 per share, helped primarily by improved customer traffic and higher gross margins. For the quarter, the Goodlettsville, Tennessee-based company's adjusted net earnings soared 75.2% to $145.4 million or $0.42 per share, and net sales increased 11.9% to $3.11 billion. Same-store sales for the quarter rose 6.7%, with customer traffic and average transaction amount contributing to the growth.
Dollar Tree Inc. (DLTR) on May 20 reported higher profit for the first quarter, helped by growth in sales that reflected increases in traffic and average ticket. In the first quarter, the Chesapeake, Virginia-based retailer's net income grew to $63.6 million or $0.73 per share from $60.4 million or $0.66 per share last year. Consolidated net sales for the period was $1.35 billion, a 12.6% rise from $1.20 billion in the year-ago quarter.
For the nine months ended May 29, Family Dollar's net income rose to $284.18 million or $2.06 per share from $231.15 million or $1.64 per share in the previous year. Nine-month net sales advanced to $5.91 billion from $5.59 billion last year.
Looking ahead for the fourth quarter, Family Dollar expects earnings of between $0.46 and $0.51 per share, higher than prior year's earnings of $0.43 per share. Comparable store sales for the quarter is projected to increase 5% to 7%. Analysts expect the company to report earnings of $0.53 per share for the fourth quarter, with estimates ranging between $0.46 and $0.59 per share.
Levine said, "As we look to the fourth quarter, we expect that many of the trends we saw in the third quarter will continue. However, the environment remains challenging for consumers, and customers continue to buy close to need. The fourth quarter is off to a good start, with sales in comparable stores increasing an estimated 5.5% in June."
Further, the company lifted the lower end of its full year earnings forecast, and now expects earnings between $2.53 and $2.58 per share, compared to the prior estimate of $2.48 to $2.58 per share. Last year, the company had reported earnings of $2.07 per share. Analysts expect the company to report earnings of $2.59 per share for the full year.
Peer Dollar General currently estimates full year adjusted net earnings between $1.62 and $1.69 per share and total sales for the year to grow by 8% to 10%, including a 4% to 6% rise in same-store sales. Wall Street analysts presently expect Dollar General to report earnings of $1.72 per share on revenues of $13.09 billion for the year.
In a June 10 research note, brokerage BB&T Capital Markets initiated its coverage on Family Dollar with a 'Buy' rating.
FDO closed Tuesday's regular trading session at $39.44, up $0.82 on a volume of 3.9 million shares. In the past 52-week period, the stock has been trading in a range of $25.52 to $42.07.
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