Reuters: Global Markets: Family Dollar profit misses view, margins pinched

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Family Dollar profit misses view, margins pinched Jun 28th 2012, 12:59 Thu Jun 28, 2012 8:59am EDT (Reuters) - Family Dollar Stores Inc (FDO.N) reported a smaller-than-expected rise in quarterly profit on Thursday, as it sold more low-margin consumables and cut prices on other items to compete with rivals like Dollar General and Wal-Mart. Shares were down $5.13, or 7.4 percent, to $64 in premarket trading. Family Dollar earned $124.5 million, or $1.06 per share, in its fiscal third quarter, missing Wall Street estimates by a penny, according to Thomson Reuters I/B/E/S. That compared with a profit of $111.1 million, or 91 cents a share, a year earlier. Sales were helped as lower-income shoppers visited its small stores for essentials such as milk and food. Sales grew 9.6 percent to $2.36 billion in the quarter ended May 26, while sales at stores open at least a year were up 5 percent -- at the low point of a Family Dollar forecast in March. That was below Dollar General's most recent quarterly same-store performance. But Family Dollar's gross margin fell 0.4 point to 35.8 percent of sales in its third quarter. The hit from markdowns was mitigated in part by selling more private brands, which are more profitable. The company is looking to beef up that part of the business. In a research note, BB&T Capital Markets analyst Anthony Chukumba said the difference is "further evidence it is much easier said than done for Family Dollar" to catch up to Dollar General -- a hope that propelled Family Dollar's shares to a 52-week high of $74.71 earlier this month. For the current quarter, Family Dollar expects profit of between 71 cents per share and 81 cents per share, with same-store sales rising between 5 percent and 7 percent. That compares with analysts' expectations of 77 cents per share. Family Dollar, which sells a variety of general merchandise, hopes to grow both by opening more stores and adding more products to its shelves. Recently, it added more health and beauty items, PepsiCo drinks, magazines and gift cards, as well as cigarettes and other tobacco products. The retailer faces tough competition from Dollar General Corp (DG.N) and from Wal-Mart Stores Inc (WMT.N), which has been cutting food prices at thousands of its stores to woo shoppers. (Reporting by Phil Wahba in New York and Jessica Wohl in Chicago; editing by Bernadette Baum and Jeffrey Benkoe) Link this Share this Digg this Email Reprints

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