Family Dollar: TAG discusses FDO ahead of earnings, still prefers DG and DLTR
TAG sees in-line Q3 results; they note FDO has failed to take full advantage of the growth in the deep discount sector, by its own admission, due to poor execution—evidenced by its (3.8%) same-store sales result in 1QF14 and 2014 guidance of negative LSD. Going forward, they are encouraged by the co's return to an EDLP strategy, which we believe will drive traffic and allow Family Dollar to better compete. However, they would like to see proof of sustained improvement before becoming more constructive on the name, which could take several quarters, and they continue to prefer DG and DLTR given their consistent track records. Regardless of the fundamentals, the stock price still has support in the near-term on talk of a possible merger or LBO.