Q1 Preview: Focus Remains on Margins into Family Dollar (FDO) Results

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FDO Hot Sheet

Rating Summary:
8 Buy, 14 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
Up: 0 | Down: 0 | New: 0

Family Dollar Stores (NYSE: FDO) shares are trading slightly higher Thursday heading into the company's first-quarter 2012 earnings report.

After the market closes, Family Dollar should report earnings of 68 cents per share on revenue of $2.17 billion. The company reported 58 cents per share in the same period last year.

Family Dollar's stock gained 11.7 percent in the quarter and are down 2.7 percent since.

Last quarter, Family Dollar reported a book value of $9.26 and cash of $2.02 per share. Excluding cash, Family Dollar is going for about 13.3x next year's earnings expectations, compared with 15.2x for Dollar General (NYSE: DG) and 17.0x for Dollar Tree (Nasdaq: DLTR).

Data from Bloomberg has nice analysts with a Buy rating, 14 at Hold, and four maintaining a Sell-equivalent call. The Street price target average is $60, with a range of $46 to $70. Family Dollar has traded from $41.31 to $60.53 over the last year.

Investors appear to be taking a bullish tone for the report, with 57.5 and 60 at-the-money (ATM) calls seeing a little price increase, with some good activity. February has sees some activity with the 52.5 and 55 put options, both moving slightly higher today.

Analyst Comments

Goldman Sachs is modeling for EPS of 68 cents for the quarter, with 5 percent comps growth and continued strength in food and seasonal categories. Goldman noted that "Dollar General’s superior EBIT margin of 10.1% as compared to FDO’s modest 7.5% level provides a compelling target to emulate. FDO’s ability to close the gap with DG hinges on management’s ability to consistently drive top-line growth in consumables and seasonal."
Deutsche Bank sees EPS of 66 cents, with comps up 5.5 percent. The firm commented, "Recall FDO stated that QTD trends were "within this range" on the 4Q call on 9/28, and recent commentary from DG/DLTR/NDN/BIG suggest trends in recent months have remained very encouraging for the dollar channel." Further, the firm assumes flat EBIT margins, with gross margins down about 45 basis points to 35.6 percent.

Deutsche said, "Similar to last quarter, GPM will be in focus as the company’s move to more consumables (~70% of mix) remains a drag. Offsetting factors include: (1) zone pricing (as evident in our recent pricing study); (2) sourcing; and (3) private brand growth."
Wedbush sees EPS of 68 cents and comps up 4 percent. "Sales momentum has been driven by consumable expansions, store renovations, and improved promotional programs. The company has seen continued challenges from the inflationary environment, and gross margin continues to be pressured by an adverse mix shift and higher fuel costs. However, the company has been working to mitigate some of this pressure through better price management, the expansion of private brands, and global sourcing efforts."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Family Dollar's past performance at Streetinsider's Family Dollar's Income Statement.

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