Right now most bargain retailers are doing everything they can to make themselves more consumer friendly, seeking to win sales from folks trading down for lower prices amid economic malaise and to make the shopping experience pleasant enough to ensure that at least some who might not have before continue to patronize them after the recession. Yet, Family Dollar picked the trench of the recession to make a stand and change how it has been setting up stores. The idea was to confront shoppers with more consumable products such as paper towels and other frequently purchased, everyday items. Even the company's website features such items, ranging from the aforementioned paper towels to dog food to Coca-Cola, on the revolving banner that tops the home page.
The decision to make the move caused the company to take a hit in fourth quarter sales. Family Dollar CEO Howard Levine blamed the resets and the anniversary of last year's stimulus check spending for a disappointing absolute and comparable result in the fourth quarter. While comparable store sales did gain one percent and total sales increased just under three percent to $1.81 billion â€" as the company reaffirmed earnings per share guidance of between 39 cents and 43 cents â€" Wedbush Morgan analyst Joan Storms pointed out that the comparable store sales didn't live up to her or analyst consensus estimates of gains in the three percent range and missed the company's own guidance of two to four percent.
Management may have had a hard time figuring in the stimulus effect, and granted, even Wal-Mart had a problem with that recently. Still Family Dollar and the analysts had the Wal-Mart example to help them in their calculations. Balancing all that, it's fair to conclude the disruption in the stores that were being remerchandised, representing about half the chain, was more serious than anyone expected.
Of course, if the economy continues to founder, Family Dollar may enjoy significant returns from the opportunity cost it invested, and, in announcing fourth quarter sales, Levine remarked: "We are pleased with the progress we have made and believe that these changes position us well for continued growth in fiscal 2010."
Storms was unconvinced, dropping her target price on the company's stock by four bucks to $29 and pulling back her earnings estimate for the quarter by a penny to 40 cents while maintaining an underperform on the stock.