Family Dollar Projects Growth

MATTHEWS, N.C. — Family Dollar Stores said last week it expects a range of ongoing marketing initiatives to help the company accelerate top-line growth.

According to Howard R. Levine, chairman and chief executive officer, those initiatives include strengthening assortments, particularly in the consumables category; enhancing customer communications with more online programs and better in-store signage to reinforce price points; realigning adjacencies to improve the shopping experience; expanding operating hours; and increasing private-label assortments.

Levine declined to pinpoint what results the company is seeing from any given initiative when asked to do so during a conference call with analysts to discuss financial results for the first fiscal quarter.

Net income for the quarter, which ended Nov. 28, increased 14% to $67.6 million, while sales, as previously disclosed, climbed 3.9% to a record $1.8 billion, and comparable-store sales rose 2.4%.

The company said customer traffic was up for the sixth consecutive quarter — though average transaction value for the quarter was flat — with the strongest sales coming in the consumables category.

For December, comps rose approximately 4%, the company said, with strong performance in the seasonal and toy categories.

Family Dollar said it expects comps to increase 2% to 4% in the second quarter; 3% to 5% during the second half; and 4% to 6% for the full year. It also said it anticipates earnings per share of 65 to 70 cents for the second quarter, compared with 60 cents a year ago, and $2.15 to $2.35 for the year.

According to Levine, the chain's core low-income customers continue to account for about two-thirds of sales, while customers with annual incomes exceeding $40,000 “continue to grow as a percentage of our new sales.”

He said adjacencies have been realigned at approximately 55% of the chain's 6,655 locations, “and those stores are outperforming stores that have not yet made the changes.” Another 1,000 stores will be realigned this year, he noted.

Operating hours have been expanded at approximately 15% of the stores, “and based on the positive response from customers, we intend to accelerate this initiative and expand operating hours in substantially all stores by the end of the second quarter,” Levine said.

The expansion in store hours will be accretive to the bottom line very quickly, he added. “We have seen an accretion of the productivity of those hours through time as the customer base becomes more familiar with the change and finds more opportunities to come in during those incremental hours,” he said.

Family Dollar also plans to expand its private-label program “to help customers better meet their need for value [by] capitalizing on this opportunity and to offset the mix pressure from stronger sales of lower-margin consumables.”

Private-label penetration at Family Dollar is in the low-teens, he said, “but when you look at the potential, we see it in the arena of the 20s. We've had double-digit improvements over the past 12 months, and I think you'll see more visibility of our efforts as we go into the spring.”

Levine said Family Dollar will continue to use circulars to communicate value, “but we are experimenting with a variety of online tools that enable us to increase our brand awareness.”

Asked whether the increased use of promotions and coupons in its circulars signifies a change in the company's everyday-low-pricing approach, Levine said it does not.

“We are still an EDLP retailer, and utilizing circulars to notify customers of great deals and what's going on seasonally is the way we're going to continue to operate,” he explained. “Frankly, it's not too much different than what you see at Wal-Mart, [which offers] more of a hybrid of EDLP supplemented with various sales promotions.

“But there's no question the customer today is very focused on saving money, and we like to be in that space and are just trying to learn more ways to utilize communication methods to let our customers know some of the things that we're doing.”

Q1 RESULTS