Dollar stores have been benefitting from the prevailing conditions where people are restrained by their budgets and want to save every penny earned. Hence, they move to dollar stores for every kind of need. These store offer products at a discounted price as compared to other big box retailers.
However, Family Dollar Stores (FDO) seem to have a different story. Its performance has not been very interesting in the last one year and seems to continue to do the same. It is expected to report its third quarter results this week, on Thursday. Let us understand what to expect from the company.
What analysts expect?
The company is expected to register earnings per share of $0.89 per share, according to Yahoo Finance analysts’ estimates. However, the bottom line is lower than the prior year’s quarter wherein the earnings stood at $1.05 per share. Revenue is expected to be at $2.62 billion, an increase of 1.6% over last year. The retailer had missed the expectations in the last two quarters and had surpassed the estimates in the two quarters before that.
In the second quarter results, Family Dollar registered a top line decline of 6% and a bottom line drop of 34%, over the previous year. However, the quarter was affected by factors such as lower store traffic since harsh winters kept customers away from stores. Also, it led to store closures which resulted in higher costs for the retailer, affecting the bottom line. Its same store sales also decreased 3.8% due to lower transactions at the existing stores. Another reason for lackluster performance was lower advertising by the company and huge promotions by other players in the industry.
On the other hand, other players such as Wal-Mart (NYSE:WMT) resorted to heavy promotions and advertising in order to lure customers. It has also started offering basic items at everyday low prices, making its products competitive to that of dollar stores. Also, it has started offering smaller packages of all the products so that it is less pocket pinching when making bulk purchases. Wal-Mart has indeed made a number of efforts to combat competition, including measures such as opening smaller stores in the urban areas which weigh lower on the bottom line. These stores are easy to access for all kinds of needs of the customers.
What to expect
Family Dollar Stores also plans to undertake some measures which will help its quarterly numbers to improve. Firstly, it plans to slower its process of store openings and remodelling. In fact, it plans to close 370 underperforming stores so that it can focus on the profitable ones only.
Further, the dollar store has reduced prices of 1,000 basic items at its stores. This should help in attracting more customers. On the flip side, these measures will lead to higher costs and shrinking margins for the retailer.
Therefore, it is quite evident that Family Dollar will be burdened with higher costs and reduced margins in its current quarter. Also, store closures would lead to the lower top line too. Moreover, it faces stiff competition from other players who offer great prices and advertise heavily. Hence, the dollar store’s third quarter might not be so pleasing to the investors.