UPDATE 3-Family Dollar profit down, cuts year forecast
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NEW YORK, April 4 (Reuters) - Family Dollar Stores Inc (FDO.N) reported a 30 percent drop in quarterly profit on Friday as cash-strapped shoppers limited their discretionary purchases, and the discount retailer once again cut its full-year earnings forecast.
Family Dollar, which prices most of its merchandise below $10, also said it now expects sales at stores open at least a year, a key retail gauge known as comparable store sales, to fall 4 to 5 percent in March. That is a steeper decline than its previous view for a drop of 2 to 4 percent.
"Our customers continue to react to the current economic environment by limiting their discretionary spending," said Howard Levine, chairman and chief executive, in a statement.
Net income fell to $63.3 million, or 45 cents per share, for the fiscal second quarter, ended March 1, from $90.5 million, or 60 cents per share, a year ago.
Analysts, on average, were expecting it to earn 42 cents per share, according to Reuters Estimates. In January, Family Dollar had forecast per-share earnings of 40 to 44 cents for the period, which at the time was below analysts' average estimate of 57 cents.
"Deteriorating economic conditions resulted in softer-than-expected sales in discretionary categories, which constrained revenue growth and pressured gross margin more than we had planned," said Chief Financial Officer Kenneth Smith on a conference call with analysts.
Sales declined 6 percent to $1.83 billion in the quarter, which contained one fewer week of sales than a year earlier.
In a research note, Goldman Sachs analyst Adrianne Shapira maintained her "neutral" rating on the stock, citing "continued uncertainty surrounding its low end consumer, declining traffic trends, increasing shrink and softer discretionary product sales."
Shares of the retailer declined 1 percent to $20.89 in early afternoon New York Stock Exchange trading.
SHOPPERS CURBING TRIPS
Family Dollar operates more than 6,500 stores, and it caters to lower-income shoppers who are being squeezed by rising food costs, higher fuel prices, the housing market downturn and a weakening job market.
It has said its shoppers, many with salaries below $30,000 a year, are severely strapped for cash by the end of the month and have been consolidating their store trips, spending more time at home and putting fewer dollars toward discretionary items, like clothing.
To try to increase store traffic, Family Dollar has been installing coolers in its stores so it can sell perishable items like milk and eggs, and is also stocking more quick-preparation and ready-to-eat products.
On its conference call, Family Dollar said it expected sales trends to "improve modestly" in the second half of its current fiscal year, driven by demand for consumable goods, like food, cleaning products and health-care items.
But the retailer lowered its full-year forecast, saying it now expects fiscal year earnings of $1.50 to $1.60 per share. In January, it forecast expected earnings of $1.56 to $1.64 for the year, down from a previous view of $1.62 to $1.74.
For the third quarter, it forecast comparable-store sales to be flat to up slightly. It also expects third-quarter earnings of 39 to 44 cents per share and fourth-quarter earnings of 29 to 34 cents per share. (Reporting by Nicole Maestri; Editing by Steve Orlofsky and Tim Dobbyn)
