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Are Family Dollar Earnings Proof Recession is Over? (FDO, BIG, DLTR, NDN)


On Wednesday morning, Family Dollar Stores (FDO) came out with a most impressive fiscal second-quarter financial report.  The company said earnings jumped 33% over the same period a year ago, but that wasn’t the only good news.  The discount retailer also lifted its full-year earnings outlook to $2.48 to $2.58 a share from $2.15 to $2.35, citing strong sales momentum in the quarter as the primary reason.  That sales momentum is indeed strong, as the company saw an 11% rise in same-store sales in March, the first month of its fiscal third quarter.

In the second quarter, Family Dollar reported a profit of $112.2 million, or 81 cents a share, up from $84.1 million, or 60 cents a share, one year ago. That profit handily beat consensus Wall Street forecasts for earnings of 78 cents per share.  The retailer also forecasts third-quarter earnings of 71 cents to 76 cents a share, again above consensus forecasts for expectations of 70 cents per share.

As you might expect, shares of FDO surged on the upbeat news.  Also surging were rival discount retailers Big Lots (BIG), Dollar Tree (DLTR) and 99 Cents Only Stores (NDN). 

So, what can we make of the bump in Family Dollar’s profit picture?  Well, considering that the company’s main customer base is shoppers whose household incomes are about $40,000, one conclusion we can draw is that the lower-end of the consumer spending spectrum is finally starting to spend a little bit of money. 

Another corollary conclusion that can be drawn here is that maybe, just maybe, the economic recovery we’ve witnessed in the stock market over the past year is now finally starting to trickle down throughout the stratified layers of the U.S. consumer base.

If we continue seeing more spending in the deep discount retail space, and judging by Family Dollar’s Q3 and full-year earnings outlook we are likely to see just that, it could be the confirming indicator we need that this economy has truly turned the corner and left the 2008-2009 recession in the dust. 

Tell us what you think here.

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