Family Dollar Q3 Profit Misses View, Backs Q4 Forecast, Tightens FY14 View

(RTTNews) - Discount retailer Family Dollar Stores Inc. (FDO), which recently adopted a poison pill after activist investor Carl Icahn disclosed a 9.39 percent stake holding, reported Thursday a sharp decline in third-quarter profit, mainly on restructuring charges and lower comparable store sales. Adjusted earnings missed analysts' estimates, while top line beat the view.

Further, the company backed its fourth-quarter earnings forecast, and tightened fiscal 2014 view. Family Dollar also noted that its June comparable store sales were approximately flat.

In pre-market activity, Family Dollar stock is losing 2.48 percent, and trading at $62.65.

Chairman and CEO Howard Levine said, "Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment... Although our sales results remain below our expectations, we are encouraged by the improving trends."

After the stake holding, Icahn in mid June had called for the immediate sale of Family Dollar in a letter to CEO Levine, and asked to add three directors nominated by him to speed up the process.

For the third quarter, net income decreased to $81.15 million or $0.71 per share from $120.94 million or $1.05 per share last year.

The latest results included a $23 million or $0.14 per share charge as part of the firm's previously announced restructuring initiatives including planned store closures and workforce optimization.

Adjusted net income, which excluded charge, was $96.50 million or $0.85 per share for the quarter. On average, 25 analysts polled by Thomson Reuters expected the company to report profit per share of $0.89 for the quarter. Analysts' estimates typically exclude special items.

In the third quarter, net sales increased 3.3 percent to $2.66 billion from $2.57 billion last year. Analysts expected revenue of $2.61 billion for the quarter. Sales were strongest in the Consumables category with a 4.4 percent rise, driven primarily by strong growth in refrigerated/frozen food and tobacco.

Comparable store sales for the 13-week period decreased 1.8 percent as a result of fewer customer transactions, partially offset by an increase in the average customer transaction value, the company said.

Looking ahead for the fourth quarter, Family Dollar continues to expect earnings per share on a reported basis between $0.38 and $0.48, and adjusted earnings between $0.75 and $0.85 per share. Analysts expect the company to report fourth-quarter earnings per share of $0.78.

The company now projects approximately flat comparable store sales for the quarter, while previous estimate was comparable store sales to be flat to up slightly.

For fiscal 2014, the company now expects reported earnings per share between $2.56 and $2.66 and adjusted earnings per share between $3.07 and $3.17. Analysts expect earnings per share of $3.15.

Previously, the projection was for reported earnings between $2.55 and $2.75 per share, and adjusted earnings per share between $3.05 and $3.25.

For the year, a low-single digit increase in net sales, excluding the impact of the extra week in fiscal 2013, and a low-single digit decline in comparable store sales is still expected.

As part of its ongoing business review, the company said it is taking deliberate actions, and now expects to open 350-400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014.

In addition, Family Dollar said it is investing in longer-term initiatives to drive more profitable growth.