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Family Dollar Outpaces Slump in Home

As the limp economy continues to push lower-income consumers to concentrate on necessities, Family Dollar is broadly expanding its consumables and opening price-point offerings at the expense of weak discretionary categories like home.

During the third quarter earnings call of this deep-discount chain, which operates more than 6,500 units in 44 states, Kenneth Smith, svp, cfo, said consumables sales have jumped considerably to approximately 63% of sales in the quarter, compared to 59% in the same period a year ago.

"Sales in the quarter were driven primarily by consumables, while more discretionary categories, including apparel, home and seasonal, remained challenged," Smith said. "While we are selectively investing in incremental consumable inventories in support of traffic-driving initiatives, we continue to be aggressive in limiting our exposure in more discretionary categories."

The strategy is showing progress on the earnings front. Net income for the third quarter ended May 31 at Family Dollar increased 7.1% to $64.7 million, and net income per diluted share rose 15.0% to $0.46.

Sales of $1.70 billion were 2.9% above $1.66 billion in last year's third quarter. Comps edged up 0.1%.

Adding more opening price point merchandise to the selling floor, said Howard Levine, chairman and ceo, suits Family Dollar as a return "to our roots."

"We're growing our opening price points — that's simply going back to our roots and the strength of our business," he elaborated. "What happened is that as we grew categories and continued to move down the timeline of merchandising our stores, we tried higher price points to explore what we could do. And right now, we are really focusing on satisfying the opening price point with our customer today. That's the heart of our business and has been, and we think that's the appropriate strategy that we are in today."

On a positive note regarding Family Dollar's discretionary categories, the retailer said its inventories in the three segments — home, apparel, seasonal — declined year-over-year in the quarter. "Our average inventory per store was approximately 3% lower than average inventory per store at the end of the third quarter last year," Smith said, noting this was the ninth consecutive quarter of inventory improvement for the chain.

Other good news for discretionary items includes some improved sales performance more recently in markets with warming temperatures, and better in-store presentations of home and family apparel paired with a strengthened opening price point offering, Levine said.

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