Net income for the second quarter of fiscal 2013 rose 2.7% to $140.1 million, or $1.21 per diluted share, as sales surged 17.7% to $2.89 billion.

Family Dollar Stores, second-quarter earnings, Thomson Reuters, Michael Bloom, Howard Levine

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Family Dollar profit misses analystsí target

April 11th, 2013

MATTHEWS, N.C. – Net income for the second quarter of fiscal 2013 rose 2.7% to $140.1 million, or $1.21 per diluted share, as sales surged 17.7% to $2.89 billion.

Results benefited from an extra, 14th week versus 13 weeks in the second quarter of fiscal 2012, and executives said it contributed about $189 million in sales and 7 cents per share in earnings.

The sales performance met the forecast of analysts polled by Thomson Reuters, but earnings fell short of their average estimate by a penny. Comparable-store sales rose 2.9%, driven both by increased customer traffic and a higher average transaction.

Consumables provided the greatest sales impetus, rising 26.6% to $2.01 billion, or 70% of the total top line. Seasonal and electronics managed a 4.7% increase, while apparel and accessories were basically flat and home products dipped 1.4%.

According to president and chief operating officer Michael Bloom, food, tobacco, and health and beauty care delivered the strongest sales.

"Similar to other retailers, a confluence of factors pressuring our customer’s discretionary spend led the sales volatilities during the quarter," explained chairman and chief executive officer Howard Levine during a conference call with analysts. "Whether it’s the payroll tax increase, tax refund delays, gas prices or difficult weather comparisons, all of these factors make near-term trends difficult to predict. The unforeseen income tax refund delay had a particularly large impact on the business in late January and early February, but we saw sales trends improve as the tax refund started to make its way into our customers’ wallets."

With the strong tilt in sales mix toward lower-margin consumables, gross margin fell 145 basis points to 33.42% of sales. Although selling, general and administrative expenses declined by 19 basis points to 25.92%, operating profit edged up just 0.8% to $217.0 million.

Executives believe that the chain’s more discretionary categories will continue to be pressured in the second half and expect comparable-store sales to grow between 2% and 4% in the last six months. Comp-store sales are expected to be in the lower end of that range for the third quarter and then move to the upper end during the fourth quarter.

Third-quarter earnings are forecast to range between 98 cents and $1.08 per diluted share (compared with $1.06 in the third quarter of fiscal 2012) while fourth-quarter earnings are expected to total between 85 cents and 95 cents per diluted share, versus 69 cents in the prior-year quarter. Given those projections, full-year earnings are now estimated at $3.73 to $3.93 per share, down from January’s reduced guidance of $3.95 to $4.20 per share. Analysts on average expected $3.98 per share for the year. Total sales are expected to increase between 12% and 13% for the year, with comp-store sales gaining 3% to 4%.