This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Family Dollar's Lost Way Leads Levine into Hands of Peltz, Icahn

There is one financial metric, analysts covering Family Dollar have long puzzled over, that points to something fundamentally wrong with the company. Family Dollar earned $46.70 per square foot among the company's 8,138 stores as of its most recent quarter. Dollar General, by contrast, earned $54.60 per square foot among its 11,132 stores, nearly 17% more than Family Dollar. That gap represents the fortune everyone sees in Family Dollar.

Brian Yarbrough, an Edward Jones analyst, told TheStreet that the operating disparity between Family Dollar and Dollar General would make a merger of the two companies unlikely.

Howard Levine has articulated his return-to-the roots plan, and Yarbrough gives him 12-months, at most, to show evidence of success. 

To turn things around, Family Dollar is pulling back on the promotions started by Bloom and the company is working to close underperforming stores, while also slowing new store openings.

In the second half of 2014, Family Dollar will close 370 stores, and the company now plans to open 525 new stores this year and just 340-to-400 new stores in 2015. Family Dollar also laid off 10% of its corporate overhead.

Levine recently said he has personally gone through Family Dollar's entire product assortment and decided the company will invest $50 million this year to improve price points on about 1,000 basic SKUs.

Family Dollar is also retrofitting its distribution centers with palletization capabilities that will allow the company to package like-items in bulk, easing the shelving process for store managers.

Analysts generally think it may cost more than Family Dollar expects to fix its stores, pricing and infrastructure. Some still believe in Levine's leadership, but they question whether time is on his side.

"I think this board gives Howard Levine a year for his turnaround play," Yarbrough said, in a July telephone interview. While Yarbrough believes Levine is making the right moves, he also said "I think the cards are stacked against Howard."

Bernard Sosnick, an analyst at Gilford Securities, notes that dollar stores have all gone through bad spells. "Dollar General is now the darling of the dollar stores but both of these companies have had their problems at times and have corrected them," he said in a July 8 telephone interview.

"They have been able to get through difficult times because they satisfy a need in retail," Sosnick concluded. He thinks Levine will pull through.

"In my many years with Family Dollar, I've been through difficult times before. Family Dollar has a long track record of success. We have experienced challenges, and we have always worked effectively to reposition the company for the next phase of growth," Levine said in January.

Family Dollar, Carl Icahn, Trian Management and KKR declined to comment.

-- Written by Antoine Gara in New York

4 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
DG $74.94 -0.07%
FDO $79.63 0.23%
WMT $82.69 1.60%
AAPL $125.65 1.90%
FB $83.23 -0.08%

Markets

DOW 18,001.03 +288.37 1.63%
S&P 500 2,084.98 +23.96 1.16%
NASDAQ 4,939.14 +47.9210 0.98%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs