MATTHEWS, N.C. — Rapid increases in the mix of consumables and tobacco are coming along with greater pressure on profits for Family Dollar Stores, which on Thursday said it was reducing its earnings forecast for the fiscal year after posting disappointing first-quarter results and lower-than-expected holiday sales.
Net earnings of $80.3 million for the first quarter, which ended Nov. 24, decreased by 0.1% from last year’s first quarter despite a 12.7% increase in net sales to $2.4 billion, and a 6.6% comparable-store sales increase. Quarterly gross margins as a percent of sales tumbled by 112 basis points, reflecting the greater percentage of low-margin consumable items making up the sales mix, including food and tobacco.
The discounter added that sales during the current second quarter were more challenging than it expected as consumers faced increasing uncertainty. Although consumable sales have continued to rise, discretionary sales were under pressure, resulting in December comps of around 2.5%, Howard Levine, Family Dollar’s chairman and chief executive officer, said.
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Family Dollar subsequently narrowed its earnings guidance for the fiscal year to a range of $3.95 to $4.20 a share from previous expected range of $4.10 to $4.40, announced when the company reviewed fiscal fourth-quarter financials in October.
John Heinbockel, an analyst for Guggenheim Securities, in a research note said it was an “ugly quarter” for Family Dollar but said the consumable sales trend was encouraging over the long term, particularly if the company can manage its expenses and markdowns.
Wall Street sent a strong message of disapproval, as Family Dollar stock was trading down by more than 12% Thursday afternoon.
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