Family Dollar's Earnings Skyrocket In Fourth-Quarter

By Sam Lewis

Discount retailer credits consumable goods for robust earnings

Matthews, NC-based discount retailer Family Dollar posted its fourth-quarter fiscal 2013 earnings, and the company has to be happy. The company is crediting its robust gains to growth in consumable products, like frozen foods, health aids, and tobacco products, partnered with new POS technology.

Beating the Zacks Consensus Estimate by a few cents, Family Dollar earned 86 cents per share in the fourth-quarter of 2013. This marks nearly a 15 percent gain compared with last year’s fourth-quarter earnings of 75 cents per share. If one-time items are included, Family Dollar’s earnings for the quarter jump to 88 cents per share, almost 28 percent higher than last year’s figure of 69 cents per share. Comparable-store sales, an important barometer in gauging a retailer’s financial health, remained flat for the company, along with in-store traffic count.

Additionally, Family Dollar posted an increase in revenue of nearly six percent versus the year prior’s fourth-quarter. The growth comes thanks to the company’s consumable products mentioned earlier (rising more than eight percent), its seasonal and electronics departments (gaining more than two percent), and home products (gaining one-tenth of a percent). By focusing its business on consumable products, Family Dollar has driven its sales toward consumers dealing with heavy budget restraints. The retailer’s initiatives to realign stores can also be credited for its gains. By directing store traffic to meet customers’ product demand, Family Dollar has positioned itself to better its customers’ experience, which ultimately serves as the driving force behind a retailer’s success or failure.

Throughout fiscal 2013, Family Dollar closed 26 stores, but opened 500 new outlets, bringing the company-wide store total to more than 7,900. Renovations, expansions, and relocations happened in 830 Family Dollar stores, with plans to close 80 stores, and open 525 new ones next year. The opening of so many new stores, accompanied by the closing of a few might seem peculiar on the surface. However, the effort seems to be Family Dollar’s way of maintaining an aggressive growth pattern, while simultaneously limiting underperforming stores that prevent growth.

Giving a brief glimpse into the financials of 2014, the company is forecasting mid-single digit growth in sales, and low-single digit growth in comparable-store sales. Despite optimism, the company is forecasting declines in comparable-store sales during the first-quarter of fiscal 2014.

Read about the measures retailers are taking to reach the budget-minded millenial shopper

While the economy is not completely recovered, the trend in retail has been a slow, but steady upswing over the past five months. Customers are predicted to remain cautious in their spending, continuing to purchase items that fill basic needs and buying fewer discretionary items. To attract customers, the already discounted retailer could further drop prices on items viewed as necessities. But, Family Dollar has to be careful not to drop prices too far, as deeper discounts could disintegrate its profit margins. The company may benefit most from maintaining current price points while continue to explore new ways to stay in the good graces of current, loyal customers and gain the hearts of new ones.