NEW YORK (TheStreet) -- Family Dollar's fiscal third-quarter earnings missed estimates but investors embraced the discount retailer's financials. They shouldn't have.
With Carl Icahn owning 9.4% of Family Dollar and being a vocal critic of management, Family Dollar executives did their best job on Thursday to pitch the company as being in the early stages of a turnaround. Embattled CEO Howard Levine said the company had a "strong July 4 weekend," supported by actions to lower prices on more than 1,000 items and better coordinate that value proposition to consumers.
Levine said, "For the SKUs (stock keeping units) where we have reduced prices, we are seeing nice unit lifts, quicker than we thought." The CEO also said Family Dollar anticipates $40 million to $45 million in annualized operating profit from the closing of more than 370 stores.
The company narrowed guidance for 2014. But investors shouldn't believe that will be the end of the warnings from Family Dollar.
Family Dollar, rated a hold by my firm, Belus Capital Advisors, because of Icahn's involvement potentially leading to board level and operational changes, continues to have deeply unfavorable fundamental trends. The trends are so entrenched that even with suggestions that the business is crawling out from a dark hole, there remains an elevated risk of investor disappointment over the next earnings report. This is especially so if Icahn takes his paper profit of a reported $126 million, cashes in, and moves onto another target.