Family Dollar Lowers Outlook As Q1 Results Miss View; COO Michael Bloom Resigns

(RTTNews) - Discount retailer Family Dollar Stores, Inc. (FDO) on Thursday reported a 3 percent decline in profit for the first quarter from last year, as higher revenues were more than offset by lower comparable store sales and an intensified promotional environment. Both revenue and adjusted earnings per share for the quarter missed analysts' expectations.

Looking ahead, Family Dollar forecast earnings for the second quarter below Street estimates and also lowered its earnings outlook for fiscal 2014. The company's shares are down more than 8 percent in pre-market trades.

Family Dollar also said that President and Chief Operating Officer Michael Bloom has left the company to pursue other interests. The company will conduct a search for a new President and COO.

Separately, Family Dollar said it has promoted Jason Reiser to the position of executive vice president and chief merchandising officer. He will report to Chairman and CEO Howard Levine. Reiser will have executive responsibility for the company's merchandising, global sourcing, marketing, replenishment and financial planning teams.

Family Dollar's net income for the first quarter declined to $78.03 million or $0.68 per share from $80.28 million or $0.69 per share in the prior-year period.

On average, 26 analysts polled by Thomson Reuters expected the company to report earnings of $0.69 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter rose 3 percent to $2.50 billion from $2.42 billion in the previous-year quarter. Analysts had a consensus revenue estimate of $2.51 billion for the quarter.

Comparable store sales for the quarter decreased 2.8 percent as a result of decreased customer transactions and a slight decrease in the average customer transaction value.

Sales were strongest in the Consumables category, which increased 4.7 percent, driven primarily by strong growth in refrigerated and frozen food, health aids and tobacco.

Howard Levine, CEO of Family Dollar, said, "Many of the top-line challenges we faced in the first quarter, including a challenged consumer and an intensified promotional environment, have continued to impact our business. Comparable stores sales for December decreased about 3%, driven primarily by a decline in customer transactions. In addition, we reacted to softness in discretionary categories by leveraging promotions more than we originally planned."

Gross margin for the quarter was 34.3 percent, compared to 34.1 percent in the year-ago period. As a percentage of sales, higher markups and lower freight expense were partially offset by the impact of stronger sales of lower-margin consumables, increased inventory shrinkage, and higher markdowns.

During the quarter, Family Dollar opened 126 new stores, closed one store and renovated, relocated or expanded 179 stores.

Looking ahead to the second quarter, Family Dollar forecasts earnings in a range of $0.85 to $0.95 per share and comparable store sales to decline in a low-single-digit range. Street expects the company to earn $1.22 per share for the quarter.

Consistent with the National Retail Federation calendar, the year-ago quarter included 14 weeks, and the company estimates this extra week contributed about $189 million in sales and $0.07 of earnings per share.

For fiscal 2014, which has 52 weeks, Family Dollar now forecasts earnings in a range of $3.25 to $3.55 per share, down from the prior range of $3.80 to $4.15 per share. This compares to earnings of $3.83 per share in fiscal 2013 that was a 53-week year.

The revised guidance assumes a low-to-mid single digit increase in full-year net sales, compared to the prior forecast for mid-single-digit increase in net sales.

Analysts expect the company to report earnings of $3.98 per share for the year on revenues of $10.89 billion.

FDO closed Wednesday's trading at $66.34. In Thursday's pre-market, the stock is down $5.59 or 8.43 percent to $60.75.