Piper Jaffray Maintains Underweight Rating on Family Dollar; Raises PT

Piper Jaffray is maintaining its UW rating but raising the PT from $37 to $44 prior to Family Dollar's FDO Q1 earnings release. It is estimating Q1 EPS of $0.59. Piper is also raising its F11E EPS from $2.99 to $3.15 based on better than previously expected 1H comp, resulting SG&A leverage and an assumed $750M in buyback for F11. Recall that management said it intends to remodel all stores over the next four years and already had 200 completed before the holidays. FDO then plans to remodel 400-600 more stores in F11 with an estimated cost of $100k-$130k per store. Each renovation takes ~2-3 weeks and as a result there is some disruption to the shopping experience. Based on the current store count and assuming 800 stores will be completed in F11, FDO's plans imply that they will remodel an average of just under 2,000 stores per year over the next three years. While Piper believes the remodels could help comp performance in the long-term, it feels that performing 2,000 remodels per year in the near-term could be a drag on comp performance beginning in F12. FDO is trading 2% higher at $50.70