Family Dollar Stores, Inc. (FDO) Misses Q2 EPS by 10c; Guides Below the Street

Family Dollar Stores, Inc. (NYSE: FDO) reported Q2 EPS of $0.80, $0.10 worse than the analyst estimate of $0.90. Revenue for the quarter came in at $2.7 billion versus the consensus estimate of $2.77 billion. The Company estimates that the negative financial impact in the second quarter of fiscal 2014 from the adverse winter weather was at least $0.05 of earnings per diluted share. Comparable store sales decreased 3.8%.

Family Dollar Stores, Inc. sees Q3 2014 EPS of $0.85-$0.95, versus the consensus of $0.98.

Family Dollar Stores, Inc. sees FY2014 EPS of $3.05-$3.25, versus the consensus of $3.38.

“Our second quarter results did not meet our expectations,” said Howard R. Levine, Chairman and CEO. “The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer. In addition, like many retailers, our second quarter results were significantly impacted by severe winter weather, which resulted in numerous store closings, disrupted merchandise deliveries and higher than expected utility and store maintenance expenses.”

“Notwithstanding the macro-economic pressure, competitive environment and severe weather, we are not satisfied with our results, and we hold ourselves accountable for improving our performance,” said Levine. “To that end, we have initiated an in-depth business review to identify opportunities to strengthen our value proposition, increase operational efficiencies and improve financial performance.”

“While this business review is ongoing, we are taking immediate, strategic actions to improve our performance. First, we have made a significant investment to lower prices on about 1,000 basic items. Second, we are reducing our cost structure through the optimization of our workforce. Third, we will close approximately 370 underperforming stores. Once complete, our workforce reduction efforts and store closures are expected to result in $40 million to $45 million of annualized operating profit benefit, beginning in the third quarter of fiscal 2014. Lastly, we intend to slow new store growth beginning in fiscal 2015 to improve our return on investment. We are confident that these steps will position Family Dollar to deliver stronger returns for our shareholders,” concluded Levine.

Immediate Strategic Actions

As part of the Company’s review to identify opportunities to strengthen our value proposition, increase operational efficiencies and improve financial performance, the Company is executing a series of immediate strategic actions.

These actions include:

• Investing significantly to lower prices on nearly 1,000 basic items to deliver even more compelling values to customers.
• Reducing corporate overhead and re-aligning key organizational functions to improve execution and reinforce the Company’s commitment to being an efficient, low-cost retailer.
• Closing approximately 370 underperforming stores in the second half of fiscal 2014.
• Slowing new store growth beginning in fiscal 2015. The Company now plans to open 350-400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014. The reduction is designed to improve return on investment by capitalizing on insights regarding location, competitive dynamic and cost structure.

The Company expects to record an estimated $85 million to $95 million restructuring charge in the second half of fiscal 2014 related to the workforce reductions and store closures. This charge was not included in the earnings outlook previously provided by the Company.

The Company estimates that the impact from the workforce reductions and store closures will deliver $40 million to $45 million of annualized operating profit benefit, beginning in the third quarter of fiscal 2014. These savings are included in the Company’s fiscal 2014 earnings outlook.

For earnings history and earnings-related data on Family Dollar Stores, Inc. (FDO) click here.

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