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Family Dollar Q3 profits up 12.1% on more shoppers, narrowly misses the Street

Published: 23:36 28 Jun 2012 AEST

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Discount retailer Family Dollar (NYSE:FDO) Thursday reported that third-quarter profits grew over 12 per cent as shopper traffic increased and spent more.

For the period ended May 26, net income increased 12.1 per cent to $124.5 million, and net income per diluted share for the quarter increased 16.5 per cent to $1.06.

This compares with net income of $111.1 million, or 91 cents per diluted share in the same period a year prior.

Net sales went up 9.6 per cent to $2.36 billion, compared with total net sales of $2.15 billion in the third quarter of fiscal 2011.

Analysts, on average, were projecting earnings of $1.07 a share, on sales of $2.37 billion, according to Bloomberg.

The retail chain, founded in 1959, sells everything from household chemicals to health and beauty aids, hardware and automotive supplies.

"Today, we reported another quarter of strong double-digit earnings growth," said Family Dollar chairman and CEO Howard Levine.

"I am especially pleased that we delivered these record results even as we launched multiple initiatives late in the quarter to increase our relevancy to the customer and drive greater store productivity."

Revenue from stores open at least one year increased five per cent, as customer traffic increased, as did the average customer transaction value.

Family Dollar noted that sales were strongest in the Seasonal and Electronics and the Consumables categories.

Gross margin edged down to 35.8 per cent from 36.2 per cent, largely due to stronger sales on lower-margin consumables, and higher markups as the company brings in more private brand.

The company had lower store labour and insurance costs, which pushed down its selling, general and administrative expenses to 27.4 per cent from 27.7 per cent of sales, and said that was partially offset by higher legal expenses.

At the end of its third quarter, the company’s inventory rose 17 per cent to $1.39 billion from $1.13 billion in the prior year.

Family Dollar said the increase is due to investments to expand assortment in key consumable categories, primarily health and beauty aids and food assortments.

The company plans to open about 450 to 500 new stores, but expects to shut down around 60 to 80 locations this year.

For the fourth quarter, the retail chain projects earnings of between 71 and 81 cents per share, while analysts foresee a profit of 77 cents per share.

Revenue from stores open at least one year is expected to grow around five per cent.

For fiscal full year 2012, the company forecasts earnings in the range of $3.60 and $3.70 per share, while analysts are expecting $3.67 per share.

Family Dollar, which is headquartered in Matthews, North Carolina, operates 7,100 stores in rural and urban locations across 45 states.

During the first three quarters of fiscal 2012, the company repurchased approximately 1.7 million shares of its common stock for a total cost of $91.6 million. As of May 26, 2012, the company had the authorization to purchase up to an additional $245.7 million of its common stock.

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