Family Dollar Stores Inc. (FDO:US), the second-largest U.S. dollar store chain, tumbled the most in more than 12 years after cutting its fiscal 2013 earnings forecast, saying consumers are reluctant to spend on more-profitable discretionary items.
Family Dollar sank 13 percent to $55.63 at 9:57 a.m. in New York, after falling 14 percent for the biggest intraday drop since December 2000. The Matthews, North Carolina-based company’s shares had advanced for five straight years, including a gain of 10 percent in 2012.
Accelerating price cuts and expanding sales of lower-margin necessities will continue to weigh on profit, the company said in a statement. Consumers may trim discretionary spending even more after the expiration of a 2 percent payroll tax cut, Peter Keith, a New York-based Piper Jaffray & Co. analyst, wrote in a note.
“This expiration is a more meaningful impact on lower income spending capacity” than the income tax increases for upper income households, Keith wrote. He rates Family Dollar underweight, the equivalent of a sell recommendation.
Family Dollar said it expects full-year profit of $3.95 a share to $4.25 a share, compared to a projection of $4.10 to $4.40 in October. The average analyst estimate was for $4.25, according to data compiled by Bloomberg. The retailer projected fiscal second-quarter earnings of $1.18 to $1.28, trailing analysts’ expectations of $1.39.
Profit in the fiscal first quarter ended Nov. 24 was 69 cents a share, missing analysts’ estimates of 75 cents. Revenue rose 13 percent to $2.42 billion, beating analysts’ forecast of $2.38 billion.
The holiday-selling season “proved to be more challenging than we expected as customers faced increasing financial uncertainty,” Chief Executive Officer Howard Levine said today in a statement. He said customers are focusing “even more on basic needs.”
Dollar General Corp. (DG:US), the largest dollar store chain, said last month it expects consumers to spend more cautiously this year, spurring it to match rivals’ price cuts on popular items such as coffee and cereal.
A 2 percentage point payroll tax cut ended Dec. 31, shrinking paychecks for U.S. workers. The move is expected to pull more than $100 billion out of the economy in 2013 and is the primary reason why 77.1 percent of U.S. households will face higher taxes this year, according to the nonpartisan Tax Policy Center in Washington.
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