Family Dollar Stores, Inc.

Jul 09, 2008 (Zacks Investment Research via COMTEX) -- FDO | Quote | Chart | News | PowerRating -- Bucking the trend, Family Dollar Stores is thriving in a tough retail environment. The company has beaten Wall Street estimates three out of the last four quarters by an average of 7.78%. The company has a forward P/E of 14.06.

Company Description

Family Dollar Stores, Inc. (FDO) is a discount store chain with more than 6,430 stores in 44 states. Headquartered in Matthews, NC, the company's stores are smaller than the big-box retailers, only 7,500 to 9,500 square feet, which FDO uses to its advantage to operate everywhere from rural towns to dense urban neighborhoods.

FDO, a Zacks #1 Rank (Strong Buy), opened 300 new stores and closed 43 stores during the fiscal year ended Sept 1, 2007. Its strategy is to sell no frills merchandise mostly priced under $10.00.

Family Dollar Beat Wall Street Estimates for the Third Quarter by 12.20%

On July 2, Family Dollar reported third quarter earnings and surprised on estimates by 12.20%, or 5 cents per share. Net income rose 7.1% to $64.7 million, or 46 cents, compared to $60.4 million, or 40 cents, in the third quarter 2007.

Sales increased 2.9% to $1.702 billion versus $1.655 billion in the year ago period. Comparable store sales increased 0.1%. The company said an increase in the average customer transaction offset the lower customer traffic.

For the first three quarters of the year, sales rose 0.3% to $5.22 billion compared to $5.20 billion in 2007. Additionally, in 2008, the first three quarters also had one less week than the same period in 2007. Comparable store sales decreased 0.3%.

Similarly, as in the third quarter, the first three quarters saw lower customer traffic but the average customer transaction was higher during the period.

The company acknowledged the tough retail environment.

'We have made significant investments in our business to enable us to manage better in these uncertain times, and we are seeing tangible benefits,' said Howard Levine, Chairman and Chief Executive Officer.

'In addition, our intense focus on controlling expenses and mitigating inventory risk has resulted in net income growth and an improvement in inventory productivity, despite flat comparable store sales,' he said. Family Dollar Provides Fourth Quarter Guidance

FDO expects the federal stimulus payments to impact sales in the fourth quarter but the company doesn't know by how much. Comparable store sales for June are expected to increase by approximately 6%, which is above the company's original sales plan.

Family Dollar sees comparable store sales increasing 4 to 6% compared to the fourth quarter of 2007. Earnings per share for the full year are forecast to be in the range of $1.58 to $1.62 per share. The company expects to open 200 new stores and close about 75 stores for the year.

Analysts Raise Estimates for the Fourth Quarter and the Year

In response to the company's third quarter earnings report and full year guidance, eight out of nine covering analysts raised estimates for the fourth quarter on average of 3 cents to 32 cents per share from 29 cents per share.

For the full year, all covering analysts raised estimates in the last week by an average of 9 cents to $1.60 from $1.51 per share, which is in-line with the company's forecasted earnings guidance.

Share Buyback Program

Family Dollar has been repurchasing shares. During the first three quarters, FDO repurchased approximately 3.7 million shares of its common stock for a total cost of $97.7 million. The company has authorization to purchase an additional $133 million going forward under the program.

Value Fundamentals

Family Dollar's forward P/E is 14.06. Its price-to-book is 2.46, slightly under the industry average of 2.5.

The company has an excellent five year average return on equity of 18.30%. In addition to the share repurchase program, FDO has a current dividend yield of 2.20%.

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