We have recently initiated coverage on Family Dollar Stores Inc. (FDO), a self-service retail discount store chain, with a Neutral recommendation and a target price of $29.00, as we anticipate it to perform in line with the industry.

Headquartered in Matthews, North Carolina, Family Dollar offers general merchandise in four categories – consumables, home products, apparel and accessories, and seasonal and electronics ? and sells merchandise at prices from under $1 to $10.

Despite a challenging macro environment, the company’s strategic initiatives to improve the merchandising, marketing, and store operations have resulted in sustained growth in the top and bottom lines. Management now expects a growth of 5% to 7% in net sales, 3% to 5% in comparable-store sales and 3.9% to 13.5% in earnings per share in fiscal year 2010.

We believe there is a tremendous opportunity to increase gross margin through renewed effort on the store brand portfolio. Family Dollar’s point-of-sale technology and store realignment initiatives position it to drive traffic, meet customer demand and improve in-store shopping experience.

However, intense competition from other established players such as Wal-Mart Stores Inc. (WMT) and shift in demand to lower margin consumable merchandise categories triggered by the economic downturn will play spoiler.

Consequently, Family Dollar’s first-quarter 2010 sales underachieved the guidance. Although comparable store-sales for the quarter rose 2.4%, a jump of 30 basis points year-over-year, it remained below its guidance of 3% to 5%. The volatility in sales trend and the financial distress continue to adversely affect sales.

Family Dollar currently operates a chain of more than 6,600 general merchandise retail discount stores in 44 states and the District of Columbia.

Zacks Investment Research

1. (FDO) Family Dollar Stores, Inc. – Growth And Income – Zacks Rank BuyFamily Dollar Stores, Inc. (FDO) continues to perform well as analysts boost earnings forecasts. Brokerage...
2. (FDO) Family Dollar Stores, Inc. – Growth And Income – Zacks Rank BuyFamily Dollar Stores, Inc. (FDO) is trading near a 52-week high on bullish earnings forecasts...
3. (FDO) Family Dollar Stores, Inc. – Momentum – Zacks Rank BuyFamily Dollar Stores, Inc. (FDO) continues to surge higher on strong second-quarter results and bullish...
4. (FDO) Family Dollar Stores – recently hiked its dividend by 8%Family Dollar Stores, Inc. (FDO) recently hiked its dividend by 8% to 13.5 cents per...
5. (FDO) Family Dollar Stores – beat analyst estimates in each of the last four quartersFamily Dollar Stores (FDO) reported excellent first-quarter results in early January that sent its share...
6. (FDO) Family Dollar Stores – company also saw strong holiday salesFamily Dollar Stores, Inc. (FDO), the discount store chain with more than 6,600 stores in...

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