Family Dollar Profits Dip as Sales, Comps Climb

Don Hogsett, January 2, 2006

Matthews, N.C. — Even though sales climbed higher at a double-digit pace, first fiscal quarter profits at Family Dollar Stores Inc. dropped off by slightly more than five percent, hobbled by rising costs and higher interest expense.

Profits at the low-cost neighborhood retailer slipped by 5.6 percent for the period, to $51.4 million from $54.4 million, hit by the cost of installing refrigerated coolers in 400 stores and adding new merchandising programs.

Fueled by new store openings, sales improved by 9.5 percent, to $1.5 billion from $1.4 billion, while same-store sales improved by 3.0 percent.

Hardlines continued to drive the top line, growing by 4.2 percent on a same-store basis. But acting as a drag, softlines declined by 1.6 percent in same-store sales.

Putting a dent in the bottom line, operating costs climbed by 90 basis points, or nine-tenths of a percentage point, to 28.1 percent of sales from 27.2 percent a year ago. Measured in raw dollars, costs jumped up at a faster pace than sales, rising by 13.2 percent, to $425.3 million from $375.7 million.

The rising costs more than offset a modest improvement in the gross margin rate, which widened by 20 basis points, or two-tenths of a percentage point, to 33.6 percent from 33.4 percent during the same period a year ago. Crimped by the higher costs, operating profits retreated by 2.0 percent, to $82.9 million from $84.6 million.

Putting profits under even more pressure, interest expense jumped during the period, to $1.2 million, compared with interest income of $524,000 a year ago. On the plus side, inventories were held in check, rising at a slower pace than sales. Stockpiles grew by 7.6 percent, to $1.1 billion, compared with the 9.5 percent increase in sales.

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