Wednesday, January 6, 2010

Family Dollar Comments from Citibank and Morgan Stanley

Our Take – FDO's F1Q10 EPS of $0.49 per diluted share exceeded our estimate of $0.46 and consensus of $0.47, reflecting softer-than-expected SSS of 2.4% (vs. 3 to 5% guidance) and worse-than-expected SG&A deleverage, offset by significantly better-than-expected gross margin improvement during the quarter.

Management reiterated F2010 EPS guidance of $2.15 to $2.35, vs. current
consensus of $2.24. We are encouraged to learn that Dec. ’09 SSS were up 4%,
reflecting a 2-year run rate of +10%, and compares with FDO’s 1Q 2-year run rate
of 4.5%. [citibank]

Impact on our views: Family Dollar reported December
comps of +4%, well above our expectations that comps
could have come in negative. For the past twelve
quarters there had been a strong correlation between
FDO’s comps and changes in year over year gas prices.
Despite December gas prices being up 55% and lapping
a 6% 2009 comp, the company posted positive sales for
the month of December. The company cited strong toy
sales for holidays as a factor in the results,
demonstrating improvement in merchandising. As
sentiment was negative headed into today’s result, we
would expect a positive reaction today. This result is a
positive read through to the dollar channel where the
consumer continues to focus on value.[morgan stanley]

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