Family Dollar Keeps Falling Short

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NEW YORK (TheStreet) -- Family Dollar has been struggling -- and it looks like it's about to get worse.

The company's revenue and income could fall in the coming years due to the closure of more than 300 stores, a drop in the pace of new store openings, and price cuts. Its competitors, on the other hand, aren't slowing down. As a result, Family Dollar could see its market share shrink.

Family Dollar has been lagging behind its main rivals in terms of revenue and earnings growth for the last five years. It is already the least profitable operator in its peer group, and its margins aren't getting any better.

For these reasons, the company's shares -- down 11.6% year to date to $57.40 as of Monday at 3:15 p.m. -- could continue to struggle.

The short interest in Family Dollar has reached record lows, but that is due to takeover speculation, not an improvement in the company's fundamentals.

In its previous quarterly results, Family Dollar reported a 6.1% year-over-year drop in revenue to $2.72 billion, while its net income plummeted 35.2% to $90.9 million, or 80 cents per share.

Last year's results included an extra week, which contributed $189 million to sales and 7 cents per share to earnings. The severe winter weather in the previous quarter dragged the company's earnings by 5 cents per share.

Family Dollar's same-store sales dropped 3.8% due to lower customer transactions. The company reported a drop in revenue in all categories.

Category (in Millions)

2Q 2013

2Q 2014

% Change

Consumables

$1,932.45

$2,011.50

-3.90%

Home products

$281.78

$322.23

-12.60%

Apparel and accessories

$183.61

$206.89

-11.30%

Seasonal and electronics

$318.79

$353.38

-9.80%

Family Dollar will close 370 underperforming stores, or more than 4% of its total of 8,100 stores as of the second half of this fiscal year. This is significant for a company that closed just 22 stores in the previous six months.