Consumables king at Family Dollar in Q4, but discretionary "turns the corner"
October 9, 2013,
Matthews, N.C. - Strong sales of consumables, particularly frozen foods, health aids and tobacco, drove Family Dollar's fourth quarter sales, as economically-challenged shoppers were more focused on necessities over discretionary purchases.
Total net sales in the period, ended August 31, increased 5.8% to $2.5 billion compared with $2.4 billion a year ago. However, comparable store sales were flat, as was customer traffic and the average customer transaction value.
During the 7,900-plus unit chain's earnings call, chairman and ceo Howard Levine explained that while sales "were pressured," Family Dollar enjoyed several success in the quarter. Cooler and frozen foods exceeded expectations, and tobacco - which rolled out to stores about a year ago - is helping to drive sales and traffic.
"Average ticket with tobacco and additional items is around $17," Levine said.
And while shoppers remained mired by "tepid job growth, higher taxes, and a reduction in government-funded programs," Levine continued, "we've also begun seeing a stabilization in our discretionary businesses" - which posted their best comp of the year in higher-ticket categories. Apparel in particular has been a highlight in this department, such as leisure sportswear and maxi dresses that were recent additions to the mix.
"We're seeing improved sales trends in many key areas [in the discretionary businesses]," Levine said. "We are turning the corner in several of our discretionary businesses - improving the quality of our assortment and refining the mix to better reflect the right trends for our customers in the marketplace."
The highlights for the quarter were: net income, which swelled 26.3% to $102.2 million compared with $80.9 million in the fourth quarter of fiscal 2012; the 27.5% increase in earnings per diluted share to $0.88; and the 14.7% increase in adjusted diluted EPS up to $0.86.
Adjusted net income for the period was up 12.5% to $99.0 million as compared to $88.1 million in fiscal 2012, "excluding the favorable $5.0 million accounting adjustment in the fourth quarter of fiscal 2013 and the litigation charge of $11.5 million in the fourth quarter of fiscal 2012," the company noted.
"While the environment was more challenging than expected, I am pleased with our progress," Levine said. "We have increased our market share, we have stabilized margins and we are increasing profitability."
For fiscal 2013, net income was up 5.1% to $443.6 million compared with $422.2 million in fiscal 2012. Earnings per diluted share grew 7.0% to $3.83 and adjusted diluted EPS was up 4.4% to $3.80. Adjusted net income for the year increased 2.6% to $440.4 million as compared to $429.4 million in the prior year.
Total net sales grew 11.4% to $10.4 billion compared with $9.3 billion in 2012. And comparable store sales increased 3.0%, a result of increased customer traffic and an increase in the average customer transaction value. Again, sales were strongest in the consumables category, which rose 16.9% during the year, driven primarily by strong growth in food, health and beauty aids, and tobacco.
Family Dollar noted that, consistent with the National Retail Federation calendar, its fiscal 2013 included 53 weeks as compared to 52 weeks in fiscal 2012. The Company estimates this extra week contributed approximately $189 million in sales and $0.07 of earnings per diluted share.
During fiscal 2013, Family Dollar opened 500 new stores, closed 26 stores, and renovated, relocated or expanded 830 stores.
Looking ahead, Family Dollar is taking "a cautious approach to fiscal 2014," Levine continued, "given the uncertainty of the operating environment and the near-term challenges our customer continues to face. While the first quarter will be our most difficult sales comparison, as we cycle a 6.6% increase in comparable store sales, these comparisons will ease as we move through the year."
For the 52-week year ending Aug. 30, 2014, the company expects that earnings per diluted share will be between $3.80 and $4.15, compared with $3.83 in fiscal 2013, which included an extra week and the company estimates contributed 7 cents of earnings per diluted share.
For the first quarter of fiscal 2014, Family Dollar expects that comparable store sales will decline in the low-single-digit range and that diluted earnings per share will be between 65 and 75 cents per share compared to 69 cents per share in the first quarter of fiscal 2013.
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