Sector Snap: Dollar stores tumble

NEW YORK (AP) -- Shares of dollar store companies tumbled Thursday after Family Dollar Stores Inc. reported a flat profit for its fiscal first quarter and issued a weak outlook for the current quarter and full year.

The Matthews, N.C.-based company posted a 13 percent increase in revenue, but said the jump in sales stemmed from heavy promotions, reducing profitability. Its quarterly profit, as well as its predictions for the current quarter and full year, fell short of Wall Street estimates.

Family Dollar also warned that the holiday season was tougher than it expected it would be, as continued economic uncertainties made its customers think twice about their purchases. The company said its December sales at stores open at least a year grew just 2.5 percent, compared with a 6.6 percent increase in the first quarter.

The metric is a key measure of a retailer's health, because it excludes revenue at stores that recently opened or closed.

The weak profit and guidance prompted Raymond James analyst Dan Wewer to cut his rating for the company to "Market Perform" from "Outperform," citing its inconsistent sales trends and the continued pressure on its profitability.

Not surprisingly, Family Dollar shares posted some of the day's largest losses, dropping $7.32, or 11 percent, to $56.72 in heavy midday trading after falling as low as $54.93 earlier in the session.

Over the past 52 weeks, the company's shares have traded between $53.03 and $74.73. During 2012, the shares gained about 11 percent.

Meanwhile, other dollar store operators posted less dramatic losses. Shares of Fred's Inc. fell 37 cents, or 2.7 percent, to $13.40; Dollar General Corp. dropped 79 cents to $42.13 and Dollar Tree Inc. fell 44 cents to $39.46.