Holidays not so happy at Family Dollar

Despite solid sales trends at Family Dollar during the company’s first quarter ended November 24, margins contracted and profits were less than expected.

The company reported earnings per share of 69 cents that were at the low end of the company’s guidance range of 69 cents to 78 cents and well below analysts’ consensus forecast of 75 cents. The culprits were sales driving initiatives that involved food and consumables that put pressure on gross margins. The company’s second quarter is also off to a shaky start due to a weaker than expected 2.5% same store sales increase in December.

Sales for the quarter increased 12.7% to $2.4 billion due to a combination of a 6.6% same store sales increase, the addition of 125 news stores and the renovation, relocation and expansion of 169 others. The top line improvement didn’t translate entirely to bottom line success though as net income for the quarter was $80.3 million compared with net income of $80.4 million for the first quarter of fiscal 2012. Gross margins also contracted to 34.1% of sales from 35.3% of sales the prior year. Stronger sales of lower margin consumables, higher markdowns and increased inventory shrinkage were partially offset by higher markups and lower freight expense, according to the company.

"Early results from our sales-driving initiatives exceeded our expectations in the first quarter, resulting in more gross margin pressure than anticipated. This mix pressure, combined with expected headwind