After all the battles among the retail-discount dollar stores, Dollar Tree (DLTR - Analyst Report) held their position strong and acquired Family Dollar (FDO- Analyst Report).  But the fourth quarter for Family Dollar was disappointing as quarter earnings fell as much as 66% due to inventory markdowns, restructuring chargers and merger fees.   Family Dollar stopped Dollar General (DG - Analyst Report) from completing a hostile takeover, but ended up on the short end of the stick in earnings reports.

The discount store gained out .05% during intraday trading on Thursday, but quickly turned around in afterhours trading and lost about .71%.

To recap, Family Dollar, which agreed to sell itself to smaller rival Dollar Tree for a lower cash-and-stock deal of $8.5 billion, rejected Dollar General's $9.1 billion all-cash bid saying the offer did not address anti-trust concerns.

“Although our fourth quarter results continue to reflect the difficult competitive environment, as well as the financial challenges facing our customers, we are continuing to execute our previously announced restructuring initiatives to improve our performance,” said Howard R. Levine, Chairman and CEO.

“While we are still in the early stages of our turnaround plan, we believe that the strategic actions taken in fiscal 2014 will position the Company for better sales and earnings performance in fiscal 2015. We anticipate that the first quarter will be our most challenging quarter of fiscal 2015, but we expect momentum will build as we move through the rest of the year.”

Fourth Quarter Results 

•  Fourth Quarter Earnings Per Diluted Share of $0.30; Adjusted Diluted EPS of $0.73
•  Fourth Quarter Comparable Store Sales Increase 0.3%
•  Full Year Earnings Per Diluted Share of $2.49; Adjusted Diluted EPS of $3.05
•  Full Year Comparable Store Sales Decrease 2.1%

Total net sales for the fourth quarter ended August 30, 2014, increased 4.5% to $2.61 billion from $2.50 billion from same time last year.  Comparable store sales were less than impressive at an increase of  0.3% as a result of an increase in the average customer transaction value, partially offset by fewer customer transactions. Sales in the fourth quarter of fiscal 2014 were strongest in the Consumables and Seasonal and Electronics categories.

Gross profit for the fourth quarter of fiscal 2014 was $861.3 million or 32.9% of net sales. During the quarter, the company implemented a series of restructuring initiatives, including the closing of 375 underperforming stores. As a result, the company incurred $10.4 million in inventory write-downs in an effort to sell through merchandise at stores scheduled to close.

The company did not come out with a fiscal 2015 outlook, but should be coming with one in next quarter’s earnings release.

Bottom Line

We currently rank Family Dollar as a Zacks Rank #3 (hold) and the company has disappointed consensus earnings estimates by an average of -3.63% in the past year.  Next quarter’s earnings estimate is projected to be 71 cents per share while we are seeing $3.31 per share for next year. 

100% of analysts have downgraded their earnings estimates for next year in the past two months, suggesting a bearish trend in expectations.  Investors should be on the look out to see if they can turn things around and reap the benefits from the recent merger and capitalize on increased sales during the coming holiday season.