Is Family Dollar Trying to Pass the Buck?

Is Family Dollar Trying to Pass the Buck?

While many dollar stores appear to be benefiting from cash-strapped consumers, Family Dollar Stores is blaming the economy for its weakening results. Family Dollar is the first to report on the holiday quarter among Dollar Tree and Dollar General , both of which have been reporting robust growth and are expected to continue to do so. In light of this, it appears that Family Dollar's woes may have less than to do with the macro picture and more to do with internal problems than the company is admitting.

Family Dollar results
On Jan. 9, Family Dollar reported fiscal first-quarter results for the period ending Nov. 30, 2013. Net sales inched up 3.2% to $2.5 billion on increased store count. Same-store sales slipped 2.8%. Family Dollar saw a decrease in both the number of customers and the total purchases per customer. It's obviously not a healthy combo. Net income fell 2.9% to $78 million or $0.68 per share.

Chief executive Howard R. Levine blamed a tough comparable to last year as well as "economic uncertainties" and an intensified "promotional environment." President and COO Michael Bloom resigned to "pursue other interests," leaving the position empty while Family Dollar searches for a replacement. Bloom had no departing words in the press release. This suggests that his departure may have been on less-than-friendly terms and could be related to the company struggles to find growth.

Going forward, Family Dollar expects the weakness to get worse. December 2013 saw a 3% decline in same-store sales, and the company is expecting same-store sales to be negative for the quarter. Earnings per share are expected to dive between 21% and 30% to $0.85-$0.95 compared to $1.21 last year.

Levine continued to blame things such as "softness in discretionary categories" and "a difficult operating environment." Though he did admit, "We have a great business model and ample growth opportunity, and I know we can do better." That line was the most encouraging. When a CEO takes ownership of a shortfall, it gives investors better hope than one who fully blames the economy.

Dollar Tree
As for Dollar Tree, it's almost as if it is operating in a completely different industry than Family Dollar. Last quarter Dollar Tree saw gains across the board. Sales rose 9.5%, same-store sales hopped 3.1%, and adjusted earnings per share leaped 13.7% to $0.58.

Chief executive Bob Sasser noted a "very cautious consumer environment," but he said that actually helped bring budget-constrained consumers into the door as they seek discounted value. More than halfway through the holiday quarter, Dollar Tree said it was running ahead of its forecasts, so it's reasonable to expect another solid quarter with the upcoming report.

Dollar General
Meanwhile, Dollar General has also been thriving. Last quarter, net sales popped 10.5%, same-store sales jumped 4.4%, and earnings per share soared 14%. Dollar General saw the 23rd quarter in a row of increased traffic and increased average ticket. Just like Family Dollar and Dollar Tree, CEO Rick Dreiling recognized an "ongoing challenging consumer environment," but the company is still seeing fantastic growth, which it expects will continue.

Foolish final thoughts
Family Dollar is struggling at a time when it should be thriving. With the COO quitting without a replacement, and the company showing declines while its competitors are showing robust gains, Fools may want to consider staying on the sidelines. The CEO says the company has opportunity for growth and can do better. I agree. Wait for the company to prove it.

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