MATTHEWS, N.C. — Expanded selections of food and consumables at Family Dollar Stores are resonating with the retailer’s core shoppers, executives of the chain said last week.
The company said overall consumable sales increased by 16% in the fourth quarter ended Aug. 25, with food experiencing double-digit comparable sales increases. This performance helped the discounter withstand continued weakness in sales of discretionary categories and a resulting dip in gross margin as a percent of sales during the quarter and fiscal year.
Net income for the quarter increased 1.4% to $80.9 million on $2.4 billion in sales. Total sales climbed by 10.8% and comps increased by 5.4%.
Howard Levine, chairman and chief executive officer of Family Dollar, in a conference call discussing results said a new distribution arrangement with McLane helped to expand the quality and variety of consumable items at Family Dollar stores.
Read more: Family Dollar Sees McLane Boosting Consumables
“While the new items haven’t been in our stores very long, it’s clear that our customers are voting with their wallets and really like our new expanded assortment,” Levine said, adding that he expected sales to accelerate as customers become better acquainted with the selection.
Levine said the McLane deal has allowed for its store to carry key national-brand items as well as tobacco products, but that Family Dollar’s private brands were growing even faster. Family Dollar added 400 new private-brand items during 2012, helping the category grow by 16% — and expects to add another 500 new items this year, Levine said.
Growth in this segment — along with planned improvements in labor and buying productivity — is expected to help the retailer withstand gross margin pressure likely to come along with a greater percentage of consumable sales and a macroeconomic environment likely to remain challenging, Levine said.
Family Dollar is projecting a net sales increase for the year between 13% and 15%, with comp-store sales expected to rise between 4% and 6%. It also expects shrink will rise and markdown will be higher during the first quarter.
The company expects to open 500 new stores in the fiscal year, up slightly from 475 new stores in fiscal 2012. Capital expenditures are expected to be around $600 million to $650 million. The company expects to open a new distribution center in St. George, Utah, late next summer, which will support store growth in the Western states.
Levine said the merchandise changes helped to create “an opportunity” to reach higher-income shoppers.
More news: Family Dollar Adds More Food SKUs
“We’re still in the early innings in terms of making our stores more appealing to that type of customer. But when I think about what we’ve done with the renovation program, the way we’ve grown our assortment, [and] importantly, our focus on improving the quality of our private-brand merchandise. … All of those things are critically important not only to our core customer, but particularly this higher-income customer,” he said.
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