Earnings Analysis: Family Dollar Stores Inc. (FDO)

Family Dollar Stores, Inc. (NYSE:FDO) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Family Dollar Stores Inc.’s analysis versus peers uses the following peer-set: Costco Wholesale Corporation (NASDAQ:COST), Target Corporation (NYSE:TGT), Dollar General Corp. (NYSE:DG), Dollar Tree, Inc. (NASDAQ:DLTR), Big Lots, Inc. (NYSE:BIG) and Fred’s, Inc. (NASDAQ:FRED). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Earnings Analysis: Family Dollar Stores Inc. (FDO)

Valuation Drivers

Family Dollar Stores Inc.’s current Price/Book of 5.9 is about median in its peer group. FDO-US’s operating performance is higher than the median of its chosen peers (ROE of 35.4% compared to the peer median ROE of 19.4%) but the market does not seem to expect higher growth relative to peers (PE of 18.5 compared to peer median of 18.5) but simply to maintain its relatively high rates of return.

The company’s asset efficiency (asset turns of 2.9x) and net profit margins of 4.5% are both median for its peer group. FDO-US’s net margin continues to trend downward but is still within one standard deviation above its five-year average net margin of 4.0%.

Economic Moat

FDO-US’s revenues have changed in-line with its peers (year-on-year change in revenues is 9.2%) but its earnings have lagged (annual reported earnings have changed by 8.7% compared to the peer median of 12.2%), implying thatthe company has less control over its costs relative to its peers. FDO-US is currently converting every 1% of change in revenue into 0.9% change in annual reported earnings.

FDO-US’s return on assets is above its peer median both in the current period (13.3% vs. peer median 9.1%) and also over the past five years (11.6% vs. peer median 6.1%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s gross margin of 37.2% is around peer median suggesting that FDO-US’s operations do not benefit from any differentiating pricing advantage. In addition, FDO-US’s pre-tax margin of 7.1% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

FDO-US’s revenues have grown at about the same rate as its peers (8.0% vs. 7.0% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 18.5. The historical performance and long-term growth expectations for the company are largely in sync.

FDO-US’s annualized rate of change in capital of 3.0% over the past three years is higher than its peer median of 2.0%. This investment has generated an above peer median return on capital of 23.0% averaged over the same three years. Evidently, the relatively high capital investment was successful given the the relatively strong growth in its returns.

Earnings Quality

FDO-US’s reported net income margin for the last twelve months is around the peer median (4.5% vs. peer median of 4.1%). However, the company has also recorded a relatively low level of accruals (-0.6% vs. peer median of 2.1%) which suggests possible overstatement of its reported net income.

FDO-US’s accruals over the last twelve months are around zero. However, this modestly negative level is also less than the peer median which suggests some amount of draining of reserves.

Trend Charts

Graph of Revenues Trend for Family Dollar Stores Inc. (NYSE:FDO)
Graph of Revenues Trend for Family Dollar Stores Inc. (NYSE:FDO)
Graph of Net Margin Trend for Family Dollar Stores Inc. (NYSE:FDO)
Graph of Net Margin Trend for Family Dollar Stores Inc. (NYSE:FDO)
Graph of Accruals Trend (% revenues, Quarterly) for Family Dollar Stores Inc. (NYSE:FDO)
Graph of Accruals Trend (% revenues, Annual or TTM) for Family Dollar Stores Inc. (NYSE:FDO)

Company Profile

Family Dollar Stores, Inc. operates general merchandise retail discount stores. Its products are categorized under consumables, home products, apparel and accessories, and seasonal and electronic products. The company’s consumables category products include household chemicals, paper products, food, health and beauty aids, hardware and automotive supplies, pet food and supplies. Its home products include domestics, which include blankets, sheets and towels, housewares, giftware, home décor. The company’s apparel and accessories category products include men’s, women’s, boys’ and girls, and infants’ clothing shoes and fashion accessories. Its seasonal and electronics products category include toys, stationery and school supplies, seasonal goods, personal electronics, which include pre-paid cellular phones and services. The company has offices in China, Hong Kong, Luxembourg and the United States of America. It was founded by Leon Levine in November 1959 and is headquartered in Matthews, NC.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.
This article was originally written by abha.dawesar, and posted on CapitalCube.
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