Economy Drives Improved Results at Family Dollar 2009-01-12

JON SPRINGER

MATTHEWS, N.C. — Shoppers seeking values in a tough economy helped raise sales, earnings and market share for Family Dollar Stores, the discounter here said last week.

The chain said net earnings during the fiscal first quarter, which ended Dec. 31, increased 14.1% to $59.3 million on sales of $1.8 billion. Sales improved by 4.2% compared with the same period a year ago. Profit as a percentage of sales increased to 35%, as the chain had fewer markdowns, higher mark-ups and reduced rates of shrink as store traffic increased.

Sales were strongest in the consumables category, driven primarily by food, officials said in a conference call. Comparable-store consumables sales, which also include paper products and household chemicals, rose 10% in the period. The company said it will continue to expand its consumables offering.

Family Dollar said it is taking advantage of the increased demand for budget-priced food at its stores by accelerating its “store of the future” program, which incorporates a point-of-sale system capable of accepting food stamps.

“In today's environment, more families are relying on the federal government's food stamp program to supplement their household budgets,” Howard Levine, chief executive officer, said, citing government statistics showing 14 million U.S. households relying on food stamps as of September, an increase of 17% from the preceding year.

About 3,000 of Family Dollar's 6,660 stores accepted food stamps by the end of the quarter. Levine said he expects the chain will have 75% of its stores on the program by the end of the fiscal year, in August.

The stores are also seeing more business from middle-income shoppers, Levine said.

He noted that it was difficult to gauge how inflation affected sales performance, because shoppers have become very price-sensitive and quick to trade down when prices increase. That mitigates the effect of inflation on sales.

The number of consumer transactions increased in the quarter, and the dollar value of the average transaction also increased, the company said.

“We saw these traffic trends through the holiday season,” Levine said. “While sales of consumable merchandise continued to be the primarily driver of sales, sales trends in discretionary categories improved from the first quarter, and we were pleased with our inventory levels at the end of the holiday season.”

The company also noted that it sees opportunities to reduce its occupancy costs in the current real estate downturn.

“What the current real estate market does is give us a lot of opportunities to upgrade,” said Jim Kelly, president and chief operating officer, in response to a question from an analyst. “So we are looking at opportunities to reduce rent. We are looking at opportunities to perhaps upgrade the quality of the space, given today's lowering rent market.”

Family Dollar's report of strong first-quarter gains followed a year in which the company's stock price soared by 30%, leading all companies on the S&P 500.