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What's in Store for Family Dollar in 2Q?

Zacks Equity Research

Family Dollar Stores Inc. (FDO), an S&P 500 company, is slated to report its second-quarter fiscal 2013 results on Apr 10. In the last quarter, it posted a negative surprise of 6.8%. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Gross margin pressure coupled with anticipated headwinds related to insurance expenditure weighed upon Family Dollar’s bottom-line performance during the first quarter of fiscal 2013. The increase in sales of lower margin merchandises is resulting in the contraction of gross margin. Increased discounts and higher inventory shrinkage are also hurting the margins. For fiscal 2013, management expects gross margin to remain under pressure.

Earnings Whispers?

Our proven model does not conclusively show that Family Dollar is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.

Zacks ESP: ESP for Family Dollar is -1.64%. This is because the Most Accurate Estimate stands at $1.20, while the Zacks Consensus Estimate is pegged at $1.22.

Zacks Rank #4 (Sell): Family Dollar’s Zacks Rank #4 (Sell) lowers the predictive power of ESP because the Zacks Rank #4 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Conn’s, Inc. (CONN), Earnings ESP of +19.15% and Zacks Rank #1 (Strong Buy).

Kraft Foods Group, Inc. (KRFT), Earnings ESP of +4.69% and Zacks Rank #2 (Buy).

Amazon.com Inc. (AMZN), Earnings ESP of +141.67% and Zacks Rank #3 (Hold).

Read the Full Research Report on FDO

Read the Full Research Report on AMZN

Read the Full Research Report on CONN

Read the Full Research Report on KRFT

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