Family Dollar (FDO) Reports Earnings Below Estimates

NEW YORK (TheStreet) -- Family Dollar  (FDO) reported second-quarter earnings that missed analysts' expectations and also announced the closure of 370 stores.

The discount store reported earnings per share of 80 cents, which came up short of the Capital IQ consensus estimate of 90 cents. Revenue declined 6.1% year over year to $2.72 billion, which was less than expectations of $2.77 billion. Family Dollar noted an extra week in the quarter contributed approximately $189 million in sales and 7 cents per diluted share. The company also estimated harsh winter weather had negative influence of at least 5 cents per diluted share.

Family Dollar also issued guidance for the third quarter and fiscal year below expectations. For the third quarter, the company expects earnings per share of 85 cents to 95 cents, less than the Capital IQ consensus estimate of 97 cents a share. Family Dollar also anticipates comparable-store sales to decline in the low-single-digits.

For the full year, Family Dollar expects earnings per share of $3.05 to $3.25, less than the estimate of $3.38. The company reduced its guidance from a previous range of $3.25 to $3.55.

Family Dollar also announced it would close 370 under-performing stores of its approximately 8,100 stores. It now plans to open 350 to 400 stores in the next fiscal year rather than the 500 it had planned.

The stock was up 0.8% to $59.54 at 9:50 a.m. on Thursday.

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Separately, TheStreet Ratings team rates FAMILY DOLLAR STORES as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate FAMILY DOLLAR STORES (FDO) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 10.0%. Since the same quarter one year prior, revenues slightly increased by 3.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels.
  • Net operating cash flow has significantly increased by 194.11% to $26.13 million when compared to the same quarter last year. In addition, FAMILY DOLLAR STORES has also vastly surpassed the industry average cash flow growth rate of -2.00%.
  • FAMILY DOLLAR STORES' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, FAMILY DOLLAR STORES increased its bottom line by earning $3.83 versus $3.58 in the prior year. For the next year, the market is expecting a contraction of 11.2% in earnings ($3.40 versus $3.83).
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income has decreased by 2.8% when compared to the same quarter one year ago, dropping from $80.28 million to $78.03 million.
  • You can view the full analysis from the report here: FDO Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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