Family Dollar Experiences Challenging Quarter

Michele SanFilippo, June 27, 2005

Matthews, N.C. — During a period Family Dollar Stores has dubbed its “most challenging quarter of the year,” the company reported net income of $53.8 million or 25.7 percent below net income of $72.4 million for the third quarter of the prior fiscal year. Sales for the quarter were approximately $1.43 billion or 9 percent above sales of $1.31 billion in last year's third quarter, said the retailer at its conference call last week.

Comp store sales in the quarter increased approximately 1.3 percent above third quarter 2004, including a sales increase of roughly 2.4 percent in hardlines and a 2.6 percent sales decrease in softline goods, which represent up to 20 percent of the merchandise mix. Fourth-quarter comp store sales are expected to increase 2 to 4 percent.

“Unfortunately, the challenging sales environment this spring, resulting from unseasonably cool weather and a difficult economy for the company's low and low-middle income customer, aggravated the operating profit margin pressures in the quarter,” said Howard Levine, chairman and CEO. “However, we continue to be pleased with the early results of our major initiatives, (which) will position Family Dollar for long-term profitable growth.”

According to Levine, products associated with the home are most affected by economic conditions that impact discretionary income. “During tough economic times, our customer won't normally purchase home-related goods,” he said. “We continue to expect macroeconomic trends to be challenging in the fourth quarter, but anticipate our initiatives will help us offset this.”

The company's urban initiative will now impact 1,300 stores by the end of September, and its refrigerated cooler rollout has been expanded to hit 1,000 locations this year to increase sales of consumable items. Family Dollar also plans on increasing its treasure hunt appeal in the stores and offering more branded merchandise, which both carry higher price tags.

So far this year, the company has opened 278 new stores and closed 63. For the full year, Family Dollar expects to open approximately 500 new stores and close 65 to 70 stores. The company has also broken ground on a new distribution center in Rome, N.Y.

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