Family Dollar Appeals to Middle Class

The financial crisis and the economy's slow-paced recovery have been a huge boost for business at dollar stores. These discount retailers' share prices have soared throughout this period, and some shareholders have benefited from increasing dividends as well. The low prices these retailers offer have attracted consumers struggling with depressed home values, a restricted credit market, and a tough job sector.
As the middle-class consumer continues to be affected by some of these issues, retailers like Dollar Tree Stores and Family Dollar Stores continue to report healthy profits.
The growth in share value for these companies has been impressive. Dollar Tree traded at slightly less than $10 per share at the start of 2008. After two stock splits in 2010 and 2012 aimed at keeping share prices low, Dollar Tree shares have risen to $59 per share and are valued at 18 times 2015 earnings.


In comparison, Family Dollar Store shares traded at around $19 per share in 2008 and currently trade at $70 per share; the stock's price-to-earnings ratio is 16 times 2015 earnings. Family Dollar's dividends have also risen steadily during this period.
Continued, albeit cautious, growth expectedDollar Tree's latest second-quarter results for the period ended Aug. 3 showed an increase in diluted earnings per share of 9.8% to $0.56. The operating margin increased 10 basis points during the quarter to 10.9%. The company opened 81 stores during the period and expanded or relocated 32 stores. Retail sales space grew by 7% versus a year ago to 42 million square feet.
Predictions for the third quarter estimate that sales will range between $1.87 billion to $1.92 billion, assuming a single-digit increase in same-store sales. Diluted EPS is expected to be between $0.54 and $0.59 per share.
Family Dollar Stores' fourth quarter ended on Aug. 31, and the retailer delivered adjusted diluted EPS of $0.86, up 14.7%. Comparable-store sales were flat during the period. For the fiscal year, the company reported an increase of 4.4% in adjusted and diluted EPS to $3.80 and higher comparable-store sales by 3%.
The company expects growth over the near term -- 500 new stores opened in fiscal 2013 and plans are in place to open 525 stores in fiscal 2014. It has adopted a cautious stance going into the new fiscal year as it works to increase market share, improve inventory turnover, and provide greater value to its customers.