Shares of Family Dollar Stores Inc. climbed Wednesday, after activist investor and billionaire financier Nelson Peltz disclosed he'd amassed a 6.6 percent stake in the discount store owner, calling its shares "undervalued."
Family Dollar has been one of the retailers to benefit from the recession as more consumers come into its stores hunting for bargains. Family Dollar has seized on the opportunity, expanding its food offerings, lengthening store hours and accepting food stamps in all its stores. Peltz's investment arm, Trian Fund Management LP, owns large stakes in a variety of major American businesses including upscale jeweler Tiffany's & Co., food company H.J. Heinz Co. and fast-food chain Wendy's/Arby's Group Inc., of which Peltz serves as chairman.
In a regulatory filing, Peltz said he now owns more than 8.7 million shares of the Matthews, N.C., chain, which operates more than 6,700 stores nationwide. He noted that he has met with Family Dollar Chairman and CEO Howard R. Levine and senior management to discuss the company's direction and ways to boost shareholder value, including increasing sales per square foot and boosting the size of Family Dollar's stock buyback plan.
Over the course of his investment in the company, Peltz said he may propose one or more nominees to the company's board.
The news sent Family Dollar shares up 7 percent to a more than six-year high of $42.17 in morning trading. Shares haven't risen that high since November 2003.
Family Dollar confirmed that it recently met with Trian executives. It noted that its stock price is up more than 41 percent so far this year and that it has bought back about $272 million of its common stock over the first three quarters of fiscal 2010.
Family Dollar earlier this month reported a 19 percent jump in its fiscal third-quarter profit, but its earnings guidance for the fourth quarter fell short of analysts' expectations, surprising investors who've come to count on Family Dollar for strong returns during this weak economy. Sales at stores open at least a year were up about 5.5 percent in June, but that was slower than the 7 percent rise in the third quarter.
Levine has said that the environment remains challenging for consumers, and the retailer continues to see customers buy "close to need."
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