Family Dollar Stores Inc posted a lower-than-expected quarterly profit on Thursday as its emphasis on selling more everyday items such as cigarettes and soft drinks put pressure on margins.
Its shares fell 8.6 percent premarket as the company also lowered its forecast for the year and said that December sales, which came in after the quarter ended, were hurt as shoppers cut back on discretionary spending.
The discount chain added cigarettes and other tobacco products, Pepsi drinks, gift cards, magazines and some other goods to its assortment in recent months to better compete against chains such as Dollar General Corp.
While that change has helped bring in more traffic, those items tend to carry lower profit margins. Gross profit margin fell to 34.1 percent in the quarter from 35.3 percent a year earlier, the company said.
Its profit was $80.3 million, or 69 cents a share, in the fiscal first-quarter that ended Nov. 24, compared with a profit of $80.4 percent, or 68 cents, a year earlier.
Analysts on average forecast 75 cents a share, according to Thomson Reuters I/B/E/S.
Sales rose 12.7 percent to $2.42 billion. Analysts on average forecast $2.38 billion.
Sales at stores open at least a year rose 6.6 percent. The company had forecast an increase of 4 percent to 6 percent.
But in December, same-store sales rose only 2.5 percent
Sales of "consumables" such as food and beauty products - by far the chain's largest category - rose 18.5 percent in the first quarter, the company said.
For the year, Family Dollar said it expects earnings of $3.95 to $4.20, below its prior forecast of $4.10 to $4.40. Analysts on average forecast $4.24 a share.