Family Dollar Up, Costco Down

From Market Watch

Wholesale-club chain Costco Wholesale Corp. said Wednesday that its fiscal-fourth-quarter profit declined 6% as the recession continued to hurt demand in the U.S. and more employees became eligible for health care.

Discounter Family Dollar Stores Inc., meanwhile, reported a 13% profit rise as it continued to win budget-conscious shoppers seeking its discounted name-brand consumables.

Signaling improved consumer sentiment and that demand may be gradually picking up for bigger-ticket and non-essential items, both retailers' results beat Wall Street expectations with Costco also reporting better-than-expected September sales. Family Dollar's September sales were at the top end of management's forecast range.

"We see a margin turnaround from a recovering sales trend in non-food categories and regional improvement from California," which represents 30% of Costco's U.S. stores, said Morgan Stanley analyst Mark Wiltamuth, who upgraded Costco last month.

Bolstered by the later back-to-school start, a Labor Day calendar shift and cooler weather in the Northeast toward the end of the month, retailers' September sales may yield a positive surprise as the industry's crucial holiday selling period draws into view.

Costco

Costco's net income rose to $374 million, or 85 cents a share, from $398 million, or 90 cents, in the year-earlier quarter, when it had a 7 cents per-share charge related to inventory accounting and a litigation settlement, the Issaquah, Wash.,-based company said.

Comparable-store sales declined 5%. That reflected declines of 6% in the U.S. and 3% internationally. Excluding year-over-year lower gasoline prices and foreign exchange, sales would have fallen 1% in the U.S. and risen 7% overseas. A stronger dollar against currencies, primarily in Canada, Korea and the U.K., hurt translated international results.

Still, analysts said food deflation and other headwinds that have been pressuring the company are dissipating.

Costco said last month that results have showed slight improvement in bigger-ticket items such as computers.

For September, same-store sales rose 1%, the first increase since September 2008 and compared against analysts' average estimate of a 0.7% decline. That included a decline of 1% in the U.S. and a rise of 6% overseas. Excluding currency and gasoline deflation impacts, sales would have increased 4%, including a 3% increase in the U.S. and 9% internationally.

Costco operates 560 warehouses, including 407 in the U.S. and Puerto Rico, 77 in Canada and 21 in the U.K.

Selling, general and administrative expenses rose 3.9% to $2.25 billion. The company said higher health-care eligibility and usage led to increased employee-benefit costs.

Family Dollar

Family Dollar said its fiscal-fourth-quarter earnings rose 13% to $60.1 million, or 43 cents a share, from $53.2 million, or 38 cents a share, in the same period a year ago.

Sales in the quarter ended Aug. 29 rose 2.6% to $1.81 billion. Its comparable-store sales rose 1%.

For fiscal 2010, the company expects net sales will increase 5% to 7% and same-store sales to grow 3% to 5%. Profit for the year is expected to be $2.15 to $2.35 a share. The Matthews, N.C.,-based Family Dollar forecast profit this quarter to be 45 cents to 50 cents a share after September sales climbed about 5%. The company also plans to open about 200 new stores this year.

"While predicting near-term economic conditions remains difficult, we believe that the current consumer focus on saving money will remain strong in 2010," said Chief Executive Howard Levine.

Gross profit, as a percentage of sales, widened to 34.8% from 33.6%, helped by lower freight expense, lower inventory loss or theft, lower discounts and higher purchase mark-ups, all of which more than offset stronger sales of less profitable consumable merchandise.

Family Dollar Raises Profit Forecast

As posted by: Wall Street Journal

Family Dollar Stores Inc. raised its outlook for the fiscal year after posting a better-than-expected 14% gain in fiscal first-quarter net income.

The Matthews, N.C.-based discounter now sees earnings for the full year of between $1.63 and $1.81 a share, up from October's projection of $1.58 to $1.78. It raised its estimate of annual revenue by one percentage point, to a gain of between 4% and 6%.

For the current quarter, Family Dollar forecast earnings of between 48 cents and 52 cents, with same-store sales up by 3% to 5%. Analysts surveyed by Thomson Reuters expect 47 cents.

Family Dollar and other deep discounters have been benefiting in recent months from the economic downturn as shoppers trade down and search for bargain-priced basics. Family Dollar has been reporting consistent growth, with traffic and market share increasing in part due to an expanded emphasis on food sales. That has helped push up its shares 41% in the past year.

For the quarter ended Nov. 29, Family Dollar reported net income of $59.3 million, or 42 cents a share, up from $51.9 million, or 37 cents a share, a year ago.

Gross margin, or profit after deducting the cost of goods, widened to 35% from 34.2% on lower seasonal markdowns and freight costs. The company also said less shoplifting and higher prices contributed to the gain.

Family Dollar last month said the quarter's sales rose 4.2% to $1.75 billion, with same-store sales up by half that amount. Consumable sales increased 13%, driven primarily by food sales. Its stock was the top performer among S&P 500 stocks last year with a 35.6% gain.

Some analysts applauded Family Dollar's efforts, with Wedbush Morgan Securities saying the company has improved "the assortment and quality of merchandise" and store appearance. But others say the 6,600-store deep discounter faces more competition and margin pressure as it adds consumable goods.