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Family Dollar results, outlook shine, shares jump
January 6, 2010 / 12:47 PM / 8 years ago

Family Dollar results, outlook shine, shares jump

<p>A woman walks by the Family Dollar store in Arvada, Colorado in this October 7, 2009 file photo. REUTERS/Rick Wilking</p>

SAN FRANCISCO/NEW YORK (Reuters) - Family Dollar Stores Inc FDO.N reported a higher-than-expected first-quarter profit and forecast earnings that should top Wall Street estimates again this quarter, sending its shares up 13 percent.

Family Dollar caters to shoppers with household incomes below $40,000. But the retailer, which sells most of its merchandise for $10 and below, has said it is attracting more shoppers with incomes of up to $70,000 as unemployment hovers in double digits and credit remains tight.

Chief Executive Howard Levine said the discounter’s “efforts to broaden the appeal of our assortment” have lured more shoppers.

Levine estimated that sales at stores open at least a year, or same-store sales, rose 4 percent in December -- stronger than the first quarter’s 2.4 percent rise -- boosted by demand for toys and gifts during the busy holiday shopping month.

“December was well above expectations,” said Pali Research analyst Stacey Widlitz, who has a “buy” rating on the stock. “Their business is accelerating significantly.”

Widlitz said Family Dollar is benefiting from efforts it began last summer to revamp its stores, giving more room to fast-moving items like food and paper towels, and cutting space for items like clothes, which were languishing.

To boost the amount of money that shoppers spend, Family Dollar is also implementing a new check-out system that allows it to accept more payment types, including food stamps and credit cards.

The check-out system should be rolled out to all of its stores by the end of the second quarter. Also, Family Dollar said it will extend operating hours in nearly all of its locations by the end of the current quarter to grab more business from frugal shoppers.

“The results are impressive, in our view, and bodes well for the entire dollar store space, particularly Dollar Tree and Big Lots which have easy comparisons cycling relatively weak holiday seasons a year ago” wrote J.P. Morgan analyst Charles Grom in a research note.

Shares of Dollar Tree Inc (DLTR.O) rose nearly 5 percent, while Big Lots Inc (BIG.N) rose 1 percent.

RISING PROFITS

Net income at Family Dollar rose 14 percent to $67.6 million, or 49 cents per share, in the fiscal first quarter that ended November 28, from $59.3 million, or 42 cents per share, a year earlier.

Analysts, on average, were expecting 47 cents per share, according to Thomson Reuters I/B/E/S. The company had forecast 45 cents to 50 cents per share.

The North Carolina retailer said gross margins rose because of fewer discounts and lower freight expenses. Gross profit margin climbed to 36.1 percent from 35 percent a year earlier.

To improve margins, Family Dollar plans to increase sales of its private-label merchandise. Such goods typically sell for less than name-brand goods but provide better margins.

The chain said inventories at the end of the first quarter were 5.9 percent lower than a year earlier.

Last month, Family Dollar reported that first-quarter net sales rose 3.9 percent to $1.82 billion. It said same-store sales rose 2.4 percent -- below its estimate for growth of 3 percent to 5 percent.

For the second quarter, it forecast same-store sales would rise 2 percent to 4 percent, and that earnings per share would range from 65 cents to 70 cents a share. Analysts, on average, expect 64 cents per share.

For the full fiscal year, Family Dollar forecast net sales will rise 4 percent to 6 percent, with earnings per share ranging from $2.15 to $2.35.

The chain, which operates 6,600 stores in the United States, said it opened 43 new locations and closed 33 stores during the first quarter.

The company’s shares rose 13 percent to $31.06 in recent New York Stock Exchange trading.

Reporting by Phil Wahba and Nicole Maestri; Editing by Lisa Von Ahn, John Wallace, Dave Zimmerman

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