FAMILY DOLLAR TO ADD COOLERS FOR PERISHABLES IN 500 STORES 2004-10-11 (2)

MARK HAMSTRA

MATTHEWS, N.C. -- Family Dollar Stores here said it will roll out refrigerated fixtures to 500 stores between January and August of next year, allowing it to expand its perishable foods offering.

In another effort to boost its food sales, the discount store chain said it would roll out point-of-sale software that would allow it to accept electronic benefit cards from customers on state-sponsored government assistance programs.

"Major investments will be made this fiscal year so we can aggressively roll out coolers to a majority of our stores in the future," said Howard Levine, chairman and chief executive officer, Family Dollar, in a conference call with analysts discussing the company's results for the fourth quarter and fiscal year ended Aug. 28.

The company lags behind its largest rival in the extreme-discount segment, Dollar General, Goodlettsville, Tenn., which has been aggressively rolling out refrigeration units for more than a year.

Asked by an analyst during the conference call about whether or not Family Dollar was in danger of losing market share to rivals, Levine said he thinks there is still "a ton of opportunity" in the perishables category.

The company also said it expects the addition of perishables to its stores will drive profit gains, although the products themselves have lower margins than the chain's core general merchandise offerings.

"It somewhat depends on how effective we are at utilizing the traffic-driving aspects of food to leverage some of the other merchandise within the store," said James R. Kelley, vice chairman and chief financial officer. "Our tests would indicate the investments we are making in the cooler program will be accretive to our earnings."

Family Dollar has been testing perishables in a limited number of stores in two metropolitan markets, one in North Carolina and one in Texas, according to George Mahoney, executive vice president, Family Dollar. Items offered in the coolers include milk, eggs, cheese and frozen dinners, he told SN.

The chain is using outside contractors for distribution of the products, he said.

In the conference call, Levine said the company would make room for the coolers in some stores by reducing inventory levels of slow-selling products, while other stores will be large enough to accommodate the additional equipment.

The rollout of coolers will be one of four key initiatives at Family Dollar in fiscal 2005, the company said. The others include improvement of store operations in urban markets, expansion of the "treasure hunt" merchandising of in-and-out items, and overall store growth.

The company, which operates 5,466 stores in 44 states, said it plans to add 500 to 600 stores in the coming fiscal year and close 60 to 70 locations. About 60% to 65% of the openings will be in urban markets.

In the recently ended fourth quarter, Family Dollar reported a 9.9% decline in net income, to $43 million, compared with year-ago results, on a 9.6% increase in sales, to $1.3 billion. The company attributed the decline in profitability to weak sales of certain discretionary items and higher shrink. Same-store sales grew 0.7% in the period.

For the year, Family Dollar posted a gain in net income of 6.1%, to $262.7 million, on a sales gain of 11.2%, to $5.3 billion, compared with results from the preceding year.