Updated from 10:52 a.m. ESTBargain retailer Family Dollar ( FDO) saw sales grow 13% as it beat Wall Street earnings expectations by a penny Thursday. Matthews, N.C.-based Family Dollar earned $57.5 million, or 33 cents per share, on $1.1 billion in sales in its fiscal first quarter, which ended Nov. 30. In the same period last year, the company earned $50.2 million, or 29 cents per share, on $977 million in sales. Wall Street analysts expected Family Dollar to earn 32 cents per share on $1.1 billion in revenue, according to First Call. For the quarter, the company posted same-store sales gains of 3%. This came despite a disappointing November, in which comparable-stores sales fell 0.7%. The company blamed its weak sales last month on the delayed Thanksgiving holiday, which came one week later than normal, and the lack of an advertising circular that it used to drum up sales last year. Same-store sales figures compare results of outlets open for more than one year. For the company's second quarter, Family Dollar has projected its same-store sales will grow between 3% to 5%. However, the winter storms that blanketed the East Coast earlier this month closed many of its stores, depressing sales. Thus, the company expects its December same-store sales to come in at the low end of that range. Family Dollar operates nearly 4,700 stores in 41 states. The discounter's store count has nearly doubled since the end of its 1995 fiscal year, when it operated 2,400 stores. The company, whose stores typically average around 7,500 to 9,500 square feet, plans to open 575 more outlets this fiscal year. Originally located primarily in small towns and rural communities, Family Dollar is focusing increasingly on large towns and cities. That has caused some problems for the company, as it has found that getting permits to open stores tends to take months in urban areas, compared with just weeks in rural communities, said David Alexander, the company's chief operating officer, on a conference call. Despite the delays, the company expects to reach its goal of 575 new stores this year.
"The whole process has created a temporary blip in store openings," he said. Noting that the company opened more than 500 stores in its previous fiscal year and has averaged a growth of 10% or more in its store base each year over the last several years, Davenport's David Campbell said Family Dollar's expansion shouldn't prove too problematic. Instead, the biggest problem facing the company is the general softness in consumer spending, he said. ShopperTrak RCT, for instance, has projected that retail sales will fall 5.4% this month compared with last December. "I'm slightly concerned about their same-store sales," Campbell said. "Operationally I think they are executing well." (Davenport doesn't have any investment banking business with Family Dollar.) And the company could well continue its torrid expansion, said Joan Storms, who covers Family Dollar for Wedbush Morgan Securities. "They still are not out on the West Coast yet, so there's still a lot of growth potential," Storms said. (Wedbush Morgan does not have any investment banking business with Family Dollar.) Wal-Mart ( WMT)has been the worst nightmare of many retailers, and the company has been experimenting lately with adding dollar goods inside its stores to compete with the likes of Family Dollar. But analysts say Family Dollar has little to fear from the retail behemoth. With more stores than Wal-Mart, Family Dollar locations tend to be easier for shoppers to get to, analysts say. And at a smaller size than the typical Wal-Mart outlet, they are less daunting to shop. "You always have to be concerned about Wal-Mart," said Campbell. "But the value Family Dollar adds is convenience." Following the company's earnings announcement, which Family Dollar made before the opening bell, the company's shares traded up $1.77 to $30.22. The company's stock is up less than 1% for the year. For a company known for its deep discounts and where the average ticket was just $8.70 during the quarter, Family Dollar has surprisingly strong gross profit margins. During the quarter, the company posted gross margins of 34%, about the same as it posted in the same quarter last year.
In a conference call with investors and analysts, Family Dollar executives said the company expects its earnings for its current fiscal year to come in at $1.43 to $1.45 per share. Wall Street analysts are expecting the company to post earnings of $1.44 per share for the year, which ends Aug. 30, according to First Call. Wall Street expects the company to post profits of 43 cents per share for the current quarter. Company executives said it's too early to tell whether the company will meet that expectation.