(Corrects paragraph 8 to reference Family Dollar's profit)
* EPS 69 cents vs Wall St 75-cent view
* December same-store sales up 2.5 percent.
* Margins hurt by shift to less-profitable products
* Shares tumble 7 pct
Jan 3 Family Dollar Stores Inc posted a
lower-than-expected quarterly profit on Thursday, sending its
shares tumbling 7 percent as its push to sell more everyday
items including soft drinks and cigarettes attracted more
customers but hurt profitability.
The company also lowered its forecast for the year and said
December sales, which came in after the quarter ended, were hurt
as shoppers limited their discretionary spending.
The discount chain began selling cigarettes and other
tobacco products, Pepsi drinks, gift cards, magazines and other
merchandise in recent months to better compete against chains
such as Dollar General Corp.
While the additions have helped draw more traffic, those
items tend to carry lower profit margins. Gross profit margin
fell to 34.1 percent in the quarter from 35.3 percent a year
earlier, the company said.
Larger price cuts also hurt margins, which fell more than
expected, according to J.P. Morgan analyst Matthew Boss.
The results, including December same-store sales, also
spotlight the impact of price competition from Dollar General
and Wal-Mart Stores Inc and pressure on the lower-income
consumers that may worsen given payroll tax increases this year,
Boss said in a note to clients.
Wal-Mart's and Dollar General's shares were down 0.6 percent
and 1.5 percent, respectively.
Family Dollar's profit was $80.3 million, or 69 cents a
share, in the fiscal first-quarter that ended Nov. 24, compared
with a profit of $80.4 million, or 68 cents, a year earlier.
Analysts on average forecast 75 cents a share, according to
Thomson Reuters I/B/E/S.
Sales rose 12.7 percent to $2.42 billion. Analysts on
average forecast $2.38 billion.
Sales at stores open at least a year rose 6.6 percent. The
company had forecast an increase of 4 percent to 6 percent.
But December's same-store sales rose only 2.5 percent
Sales of "consumables" such as food and beauty products - by
far the chain's largest category - rose 18.5 percent in the
first quarter, the company said.
Family Dollar forecast second-quarter earnings of $1.18 to
$1.28 per share on same-store sales growth of 4 percent to 5
percent. The average of analysts' estimates was for a profit of
$1.37 per share, according to Thomson Reuters I/B/E/S.
The combination of strong consumables sales growth, softness
in December discretionary sales and additional discretionary
mark-downs "will likely result in gross margin pressures similar
to, or slightly more than what we saw in the first quarter,"
Chief Financial Officer Mary Winston said on a conference call
For the year, Family Dollar said it expects earnings of
$3.95 to $4.20 per share, below its prior forecast of $4.10 to
$4.40. Analysts on average forecast $4.24 a share.
Family Dollar's shares were down 7 percent at $57.04 in
morning trading on the New York Stock Exchange after dropping as
low as $54.95 early in the session.
(Reporting by Brad Dorfman and Jessica Wohl in Chicago and Lisa
Baertlein in Los Angeles; Editing by Maureen Bavdek)