The better-than-expected fourth-quarter 2010 results for Family Dollar Stores (FDO) and an optimistic outlook for fiscal 2011 compelled us to revisit our recommendation. We now expect Family Dollar to Outperform.
The company’s strategic initiatives to improve merchandising and store operations have helped grow the top and bottom lines. The point-of-sale technology and store realignment initiatives are also helping to drive traffic. There is a tremendous opportunity to increase gross margin by renewed effort on its store brand portfolio.
Management now expects growth of 8% to 10% in net sales and an increase of 13% to 20% in earnings per share in fiscal 2011. In spite of intense competition from other established players and erratic consumer spending pattern, we remain bullish on the stock.