Family Dollar Results Miss View, Trims FY14 Guidance; Plans Job Cuts

(RTTNews) - Discount retailer Family Dollar Stores Inc. (FDO) reported Thursday a sharp decline in earnings for the second quarter, hurt by adverse weather impact, the absence on an extra week as well as lower comparable store sales. Earnings per share and net sales missed analysts' estimates. The company announced certain restructuring actions, including job cuts and store closures and further trimmed its fiscal 2014 earnings view.

In pre-market activity, Family Dollar shares lost $1.90 or 3.22 percent, and traded at $57.17.

Chairman and CEO Howard Levine said, "Our second quarter results did not meet our expectations. The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer."

For the 13-week second quarter, net income declined to $90.86 million from $140.15 million recorded in the 14-week quarter a year ago. Earnings per share dropped to $0.80 from $1.21 in the prior year.

On average, 27 analysts polled by Thomson Reuters expected the company to report earnings of $0.90 per share for the quarter. Analysts' estimates typically exclude special items.

The company said the latest earnings results were hurt by at least $0.05 per share due to adverse winter weather, and the absence of prior year's earnings benefit of $0.07 per share from the extra week.

Net sales decreased 6.1 percent to $2.72 billion from $2.9 billion last year. Analysts estimated revenues of $2.77 billion. Excluding the impact of the extra week, sales would have increased 0.4 percent.

The company noted that its sales were strongest in the Consumables category, driven primarily by strong growth in refrigerated and frozen food and tobacco.

Comparable store sales decreased 3.8 percent due to lower customer transactions, partially offset by an increase in the average customer transaction value.

Further, Family Dollar said it is executing a series of immediate strategic actions, and would reduce corporate overhead and close approximately 370 underperforming stores in the second half. The company plans to slow new store growth beginning in fiscal 2015, and now plans to open 350 to 400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014.

The company expects to record an estimated $85 million to $95 million restructuring charge in the second half related to the workforce reductions and store closures. The impact from these actions would deliver $40 million to $45 million of annualized operating profit benefit, beginning in the third quarter.

Reflecting these changes, the company now expects third-quarter earnings between $0.72 and $0.82, including approximately $0.13 per share related to restructuring charges. Adjusted earnings per share would be between $0.85 and $0.95 per share, and comparable store sales will decline in the low-single-digit range. Analysts project third-quarter earnings of $0.98 per share.

For the fourth quarter, Family Dollar expects reported earnings between $0.38 and $0.48 per share, including $0.37 per share related to restructuring charges, while adjusted earnings per share would be between $0.75 and $0.85 and comparable store sales will be flat to up slightly.

For fiscal 2014 ending August 30, the company now expects reported earnings between $2.55 and $2.75 per share, including approximately $0.50 per share restructuring charges, while adjusted earnings per share would be between $3.05 and $3.25. Analysts project annual earnings per share of $3.38.

While announcing the first-quarter result, the company expected earnings to be in the range of $3.25 to $3.55 per share for fiscal 2014.

For the year, the company now expects low-single digit increase in net sales, excluding the impact of the extra week, a low-single digit decline in comparable store sales, and a decline in gross profit.

Previously, the company was projecting low-to-mid single digit increase in full-year net sales.