Family Dollar (FDO) CEO Blames Q1 Miss on Overzealous Sales Initiatives; Shares Sink

January 3, 2013 8:39 AM EST
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Dollar stores are under pressure across the board early on Thursday after Family Dollar Stores Inc. (NYSE: FDO) reported Q1 earnings. While revenue was slightly above estimates at $2.42 billion, earnings missed by 6 cents, coming in at 69 cents vs. 75 cents expected. CEO Howard Levine blamed the miss on new sales initiatives.

Levine said, “Early results from our sales-driving initiatives exceeded our expectations in the first quarter, resulting in more gross margin pressure than anticipated. This mix pressure, combined with expected headwinds from insurance expense, resulted in earnings that were at the low end of our guidance.”

These initiatives include an increased focus on everyday items such as cigarettes and soft drinks.

Looking forward, Family Dollar Stores lowered FY2013 EPS guidance to $3.95-4.25, versus prior guidance of $4.10-4.40 and the consensus of $4.25.

Commenting on expectations, Levine said , "The holiday selling season proved to be more challenging than we expected as customers faced increasing financial uncertainty. Comparable stores sales for December increased about 2.5%, driven primarily by strong, double-digit sales of Consumables. Discretionary categories continued to be pressured, reflecting ongoing consumer caution."

The Company anticipates that many of the sales and margin trends that occurred in the first quarter will continue in the second quarter. Reflecting December results, the Company expects that comparable store sales will increase between 4% and 5% in the second quarter of fiscal 2013.

Shares of Family Dollar last traded at $58.50, down 8.6%. Dollar General Corporation (NYSE: DG) and Dollar Tree, Inc. (Nasdaq: DLTR) are trading down 3.8% and 2.9%, respectively, in sympathy with Family Dollar.

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