Family Dollar's great quarter still disappoints
How many retailers can claim double-digit gains in sales and profit in this economy?
The numbers point to a great quarter. Profit rose 12%, revenue rose 10% and customer traffic rose 5%. Retail isn't giving those kinds of numbers lately, and yet still investors were disappointed.
But in this shaky economy, Wall Street thought Family Dollar's numbers would be a little higher. Analysts wanted to see profit of $1.07 a share (the company reported $1.06) on revenue of $2.37 billion (the company reported $2.36 billion). There's no reason for shares to be down so much with that slim miss.
Family Dollar's guidance set off some alarms as well. For the current quarter, the company said it expects a profit of 71 cents to 81 cents a share on sales growth of 5% to 7%. That works out to about sales of $2.24 billion to $2.28 billion. Analysts are looking for 77 cents a share on $2.36 billion.
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But full-year guidance looks pretty good. The company is expecting a profit of $3.60 to $3.70 a share (analysts are expecting $3.67) and sales growth of 9% to 10%. That works out to about $9.32 billion to $9.41 billion in sales (analysts are expecting $9.34 billion).
I think investors should be pleased as punch that Family Dollar can pull in these kinds of numbers in the current economy. But no, they took down the stock as well as those of other dollar stores. Dollar Tree (DLTR) fell 2.4% to close at $52.18, and Dollar General (DG) fell less than 1% to close at $53.73.
Analysts simply set their expectations too high. And some of them seemed to concede that after seeing Family Dollar's earnings. Analyst Mark Montagna of Avondale Partners kept his $77 price target on the stock, saying he expects the company to make progress in closing the sales and margin gap with Dollar General, Barron's reports.
Family Dollar has been trying to compete harder with other chains, and has added cigarettes, Pepsi drinks, magazines and more health and beauty items, Reuters reports.
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Those words suggest that a company's first obligation is to the analysts rather than its own shareholders and customers, which isn't what I learned in economics class. It occurs to me that all those Wall Street analysts can easily manipulate a stock's price just by overstating or understating their expectations. (Of course, if it CAN be done, then it probably IS being done.)
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It will benefit big time from rising natural gas prices and the shale boom, pays a generous dividend, and is a bargain compared to its peers.
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