Photo: Flickr/Javier Ignacio
Family Dollar is going to start selling cigarettes and it’s expected to be a big boon for business.Morgan Stanley’s Joseph Parkhill writes about it in a note to clients today:
We believe the rollout of cigarettes can add ~300 bps to FDO’s comp and push comps into the high single digits. We estimate the rollout could add $0.18 to F2013 EPS, which is now fully reflected in our street high $4.57 estimate. We raise our price target to $77 and reiterate our OW rating.
Selling cigarettes is a pretty easy way for a retailer to boost business. Parkhill notes that the incremental costs for selling cigarettes is negligible and that it doesn’t cannibalise from other sales.
Cigarettes Should Be Very Accretive. Our view is that the sale of cigarettes are all incremental (does not replace other sales) and that there is little SG&A associated with its sales, so the margins flow through to the bottom line…