Family Dollar Stores Inc posted a lower-than-expected quarterly profit on Thursday sending its shares tumbling 13 percent as its push to sell more everyday items including soft drinks and cigarettes attracted more customers but hurt profitability.
The company also lowered its forecast for the year and said December sales, which came in after the quarter ended, were hurt as shoppers cut back on discretionary spending.
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The discount chain began selling cigarettes and other tobacco products, Pepsi drinks, gift cards, magazines and other merchandise 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.
Larger price cuts also hurt margins, which fell more than expected, according to J.P. Morgan analyst Matthew Boss.
The results, including December same-store sales, also spotlight the impact of price competition from Dollar General and Wal-Mart Stores Inc and pressure on the lower-income consumers that may get worse given payroll tax increases this year, Boss said in a note to clients.
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 December's 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.
Family dollar's shares fell to $55.31 in early New York Stock Exchange trading.