Shares of discount store chain Family Dollar Stores Inc. (FDO) slipped 1.9% on April 11 to hit a 52-week low of $55.69, primarily driven by dismal second-quarter fiscal 2014 results on the previous day. Both the earnings and net sales fell short of the respective Zacks Consensus Estimate.
Management blamed the debacle on harsh weather conditions that resulted in store closures, erratic merchandise delivery, and increase in utility and store maintenance costs. Owing to these headwinds, Family Dollar’s earnings of 80 cents a share plunged nearly 34% year over year.
The company, which competes with Dollar General Corp. (DG), posted a 6.1% yearly decrease in net sales to $2,716.6 million. Sales declined across the company’s Consumables, Home Products, Apparel and Accessories and Seasonal & Electronics segments. Gross profit and margin also shriveled during the quarter.
Battered by disappointing results, the company anticipates comparable store sales to decline by a low single digit in the next reportable quarter. Also, in sync with the company’s guidance, the current Zacks Consensus Estimate for the third quarter and for fiscal 2014 witnessed a downtrend of 10.2% and 7.6% to 88 cents and $3.15, respectively, in the last 7 days.
This Zacks Rank #5 (Strong Sell) stock currently trades at a forward P/E of 16.4x, a 0.7% premium to the peer group average, signifying further downside potential. Also, the company has long-term projected earnings per share (EPS) growth rate of 9.8%, relatively lower than the peer group average of 12.3%, depicting weakness in the company.
With a challenging macroeconomic environment, consumers are expected to remain cautious on their discretionary spending. Consequently, we could see more competitive pricing and newer products on the shop-floor to entice shoppers. However, a possible price war would definitely erode margins, which in turn would further affect the company’s results.
Other better-ranked stocks in the retail sector include Barnes & Noble, Inc. (BKS) and Bon-Ton Stores Inc. (BONT), both holding a Zacks Rank #1 (Strong Buy).