Family Dollar Stores Earnings Preview: Second Quarter 2009

Family Dollar Stores [[FDO]] is scheduled to report second quarter 2009 results before the market opens on Wednesday, April 8. Based on our analysis, we at EarningsPreview.com are expecting FDO to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $1.99 billion and EPS of $.61. This would represent an 11% increase in revenues from last year’s $1.83 billion in the same period. The current analyst consensus calls for revenues of $1.98 billion and $.60 EPS. On March 5, the company pre-announced quarterly sales of $1.99 billion and increased their EPS guidance to $.59 – $.61.

 

Based on the company’s pre-announced results, we are very confident that Family Dollar will meet or even slightly exceed Wall Street’s consensus expectations for the quarter. The company’s strong value offering clearly is resonating with consumers in these tough economic times. We would expect to see both traffic and average transaction value increase as consumers look for every opportunity to trade down.

 

The strong second quarter performance should lead management to increase guidance for the remainder of the fiscal 2009 year. The company’s recent update to EPS guidance reflects an increase of 17 – 22% over the original guidance estimates. While we wouldn’t expect that level of guidance increase for the remaining two quarters, an 8 – 12% increase does not seem unreasonable.

 

Share Performance

Family Dollar Store’s shares are up a strong 21% since the beginning of the year. In 2008, they were one of the stars of the stock market, posting a 36% increase that far exceeded the 34% decline in the Dow Jones index.

 

Valuation

Shares are now trading at 15x consensus 2010 EPS estimates. This is a slight discount to the relative valuations of their peer group. FDO’s shares have performed quite well for investors in this economic downturn and we continue to expect strong performance over the next few quarters.

 

Recommendation: Buy with a $36 price target.

 

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