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UPDATE 2-Family Dollar hurt by internal problems; COO resigns

Dhanya Skariachan
Thursday, 9 Jan 2014 | 10:59 AM ET

(Adds analyst comment, updates stock activity)

Jan 9 (Reuters) - Family Dollar Stores Inc reported weaker-than-expected quarterly results and cut its fiscal-year outlook after it was forced to discount more than it had originally planned to win shoppers in the holiday season.

The company also said President and Chief Operating Officer Michael Bloom had resigned to pursue other interests and that it would conduct a search for a replacement. Its shares fell more than 7 percent.

Thursday's news led some analysts to conclude that Family Dollar's senior management overhaul, investments in store renovations and recent decision to stock more food, cleaning supplies and other products have not paid off.

"The returns on investment just quite frankly have been disappointing," said BB&T Capital Markets analyst Anthony Chukumba. "You see evidence of that with Michael Bloom leaving."

Bloom, who joined in the fall of 2011, was responsible for many recent changes, including the expansion of frequently replenished items like food and toilet paper as well as the introduction of tobacco.

"I believe we strayed from our core strategy of serving the value-conscious consumer," Chief Executive Officer Howard Levine said on a conference call on Thursday.

Since the summer, Family Dollar has begun selling tobacco products and renovated thousands of stores. While those efforts lured more customers, they also resulted in margin pressure and higher store manager turnover, Levine told investors.

Macroeconomic factors are also hurting Family Dollar, but to a smaller extent, analysts said.

There is "no question" that-low income consumers are pressured, Chukumba said, adding that sales growth was slowing at rivals Dollar General Corp and Dollar Tree Inc as well.

Family Dollar slashed its earnings outlook for the fiscal year to a range of $3.25 to $3.55 a share. It previously had called for $3.80 to $4.15.

Dollar stores have also battled more competition from discounters such as Wal-Mart Stores, which are offering more items priced at $1 or less to woo thrifty shoppers.

Net income fell to $78 million, or 68 cents a share, in the first quarter ended Nov. 30 from $80.3 million, or 69 cents a share, a year earlier. Analysts on average were expecting a profit of 69 cents a share, according to Thomson Reuters I/B/E/S.

Net sales rose 3.2 percent to $2.50 billion, but missed the analysts' estimate of $2.51 billion. Sales at stores open at least a year fell 2.8 percent.

Shares of Family Dollar were down 7.1 percent at $61.60 in morning trading.

(Reporting by Dhanya Skariachan in New York and Lisa Baertlein in Los Angeles; Editing by Lisa Von Ahn)

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