Tickers in this Article: FDO, DG, HNZ, KFT, WEN
Back in February, retail discount store operator Family Dollar (NYSE:FDO) received a buyout offer from shareholder activist Nelson Peltz, who runs Trian Fund Management. The offer was for between $55 and $60 per share, but was swiftly rejected by Family Dollar's management team, who said it significantly undervalued the firm. The company recently reported year-end results to suggest Peltz's continued involvement is having a beneficial impact on operating trends, but the stock will likely continue to trade based on further takeout speculation.

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Full Year Recap
Sales advanced 8.7% to $8.5 billion and consisted of positive same store sales of 5.5%, and the opening of 238 net new stores, which brought the total store count, at the end of the fiscal year, to just over 7,000. By product category, consumable sales were the strongest, rising 11.1% and accounting for 66.5% of total sales. Home product sales advanced a more modest 4.7% to make up 12.7% of total sales, while seasonal and electronic sales increased 6% to make up almost 11% of sales. The final category is apparel and accessories, which saw sales squeak out a 1.6% gain to account for the remaining 10% of sales.

Cost controls allowed for a bit of operating leverage as operating income improved 10.9% to $638.1 million. Higher interest and income tax expense lowered net income growth, a bit, to 8.5% as earnings reached $388.4 million. Share buybacks boosted earnings per diluted share to $3.12, or year-over-year growth of 19.1%. However, operating cash flow declined 10.7% to $528.1 million, and backing out capital expenditure, free cash flow declined nearly 52% to $182.8 million, or approximately $1.47 per diluted share. (For more on free cash flow, see Free Cash Flow: Free, But Not Always Easy.)

Outlook
For the coming year, Family Dollar currently projects net sales growth between 8 and 10%, and earnings in a range of $3.50 and $3.75 per diluted share. Analysts are currently calling for sales growth of 8%, total sales of $9.3 billion and earnings of $3.62 per share.

The Bottom Line
Family Dollar shares are holding strong in an otherwise weak stock market environment. Peltz was recently awarded a board seat after the company rejected his buyout offer. His involvement could boost the stock further to echo his previously successful activist activities with food firms including Kraft (NYSE:KFT) and Heinz (NYSE:HNZ). He is also currently heavily involved with fast food firm Wendy's (NYSE:WEN), though the stock has yet to move significantly.

Peltz could continue to push for further improvements at Family Dollar, or encourage a buyout from another financial buyer or a potentially strategic buyer, such as rival Dollar General (NYSE:DG). In any case, for the time being, Family Dollar is likely to trade less off of the fundamentals of its business ,and more off buyout speculation. (For related reading, see Understanding Leveraged Buyouts.)

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