(Reuters) - Family Dollar Stores Inc FDO.N said on Wednesday that sales have perked up as spring weather has finally arrived, but reported a weaker-than-expected quarterly profit which it blamed on a delay in shoppers getting their tax refunds.
Still, the discount retailer was cautious about its upcoming performance, cutting its annual profit forecast for the second time due to expectations its customers would hold off on discretionary spending.
Sales at the end of January and in early February came under pressure as shoppers waited longer than usual for their tax refunds. The U.S. Internal Revenue Service more closely scrutinized tax returns that included earned income tax credit claims this year, leading to some delays. More than 13 million low-to-moderate-income Americans claimed the credit in 2012.
Sales trends improved later in the quarter as shoppers started to get their refunds, but they held off on buying items like spring apparel due to the cold weather.
Family Dollar expects sales of discretionary items such as apparel and home goods could remain under pressure this year. Customers are buying everyday products such as food and cigarettes, but they have lower profit margins than items like short-sleeved shirts and tank tops.
“You’re dealing with the low-end consumer. They buy when they need it,” said Brian Yarbrough, consumer research analyst at Edward Jones. “It does definitely sound like things in April, as the weather has gotten better, have picked up a little bit.”
Shares of Family Dollar were up 0.2 percent at $59.93 in afternoon trading after falling as low as $58.27.
The stock recovered after executives said on a conference call that sales at stores open at least a year were up about 2 percent in March. Family Dollar also saw “good sales” with the dose of warmth in early April, Chief Executive Howard Levine said.
“I still am very cautious on the stock,” said Steven Soranno, senior analyst at Calvert Investment Management, adding that Family Dollar plans to spend more on capital projects and rely on lower-margin food and other items to drive sales growth.
In the second quarter ended March 2, net income rose to $140.1 million, or $1.21 per share, from $136.4 million, or $1.15 per share, a year earlier. Analysts looked for a profit of $1.22 per share, according to Thomson Reuters I/B/E/S.
Sales jumped 17.7 percent to $2.89 billion, meeting Wall Street expectations.
Sales at stores open at least a year, or same-store sales, rose less than expected - up 2.9 percent versus the company’s own forecast of 4 percent to 5 percent and analysts’ average target of 4.1 percent, according to Thomson Reuters I/B/E/S.
Family Dollar continues to add more food and other items to its stores to better compete against larger rivals such as Dollar General Corp (DG.N). Both of the so-called dollar stores are trying to win shoppers from competitors like Wal-Mart Stores Inc (WMT.N), whose sales were also hit by the delayed tax refunds earlier this year.
Dollar General posted better-than-expected quarterly profit last month and said 2013 sales could surpass a strong 2012 as it focuses on goods such as food to attract shoppers in an uncertain economy.
For the fiscal year, Family Dollar now sees earnings of $3.73 to $3.93 a share, while analysts, on average, targeted $3.98 a share.
Family Dollar had previously cut its forecast in January, bringing it down to $3.95 to $4.20 per share from an October outlook of $4.10 to $4.40 per share.
Same-stores sales are now expected to rise 3 percent to 4 percent this year, versus a prior goal of 4 percent to 6 percent. The company now forecasts capital expenditures at $650 million to $700 million this year, up from a prior plan for $600 million to $650 million.
For the current third quarter, it expects to earn 98 cents to $1.08 per share, below analysts’ average target of $1.18. Same-store sales are expected to be at the low end of a 2 percent to 4 percent increase in the third quarter, it said.
Reporting by Jessica Wohl in Chicago and Dhanya Skariachan in New York; Additional reporting by Siddharth Cavale in Bangalore; Editing by Roshni Menon and Jeffrey Benkoe