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Family Dollar Stores CEO Discusses F4Q10 Results - Earnings Call Transcript

Family Dollar Stores CEO Discusses F4Q10 Results - Earnings Call Transcript

Family Dollar Stores (FDO)

F4Q10 Earnings Call

September 29, 2010 10:00 a.m. ET


Kiley Rawlins – VP, IR and Communications

Ken Smith – SVP and CFO

Howard Levine – Chairman and CEO

Jim Kelly – President and COO


Joseph Parkhill – Morgan Stanley

Meredith Adler – Barclays Capital

Scot Ciccarelli – RBC Capital Markets

Paul Trussell – JP Morgan Chase

Scott Kaufman-Ross - Goldman Sachs

Shane Palahicky - Citigroup

Mark Miller – William Blair & Company

Mike Baker - Deutsche Bank

Mitch Kaiser - Piper Jaffray

Wayne Hood – BMO Capital Markets



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I would like to welcome everyone to the Family Dollar earnings conference call. [Operator instructions.] I would now like to introduce Ms. Kiley Rawlins, vice president of investor relations and communications. Ms. Rawlins, you may begin your conference.

Kiley Rawlins

Thank you operator and good morning everyone. Thank you for joining us today. Before we begin, you should know that our comments today will include forward-looking statements regarding various operating initiatives, sales and profitability metrics, and capital expenditures, as well as our expectations for future financial performance.

While these statements address plans or events, which we expect will, or may, occur in the future, a number of factors as set forth in our SEC filings and press releases could cause actual results to differ from our expectations. We refer you to, and specifically incorporate, the cautionary and risk statements contained in today’s press release and in our SEC filings.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today, September 29, 2010. We have no obligation to update or revise our forward-looking statements except as required by law, and you should not expect us to do so.

With me on the call this morning are Howard Levine, Chairman and CEO, Jim Kelly, President and COO, and Ken Smith, Chief Financial Officer. We will begin our discussion this morning with a review of fiscal 2010, and then we'll take a few minutes to discuss our plans and outlook for fiscal 2011.

Because of the amount of information we intend to discuss, our prepared comments this morning will be longer than usual. We will of course host a question and answer session after our prepared comments, and please remember that the queue for the question and answer session will not be available until after we have finished our prepared remarks.

Before we get started with our formal discussion of 2010, I'd like to cover a couple of housekeeping issues. First, as announced in our earnings release, we will no longer report quarterly sales separate from quarterly earnings. We expect to report sales and earnings for the first quarter on January 5, 2011.

Second, I would note that the balance sheet presentation reflects the reclassification of certain insurance liabilities. In short, we had previously recorded our insurance liabilities net of expected recovery. The revised presentation includes the recording of both the gross insurance liability as well as an insurance asset related to claims. In addition, we have broken out the insurance liabilities and related assets into both current and long term portions.

Finally, I'd like to announce that we're hosting an investor update meeting in New York on October 6. If you have not received an invitation, and would like to attend, please contact me after today's call.

Now I would like to turn the call over to Howard Levine for some opening comments. Howard?

Howard Levine

Thank you Kiley, and good morning everyone. This morning we reported another year of strong earnings growth, with earnings per diluted share for fiscal 2010 increasing 26.6% to $2.62 per share compared with $2.07 per share in fiscal '09.

We also significantly improved the shopping experience at Family Dollar to include the following accomplishments. We expanded our assortment of consumables, increased our focus on quality, and incorporated more customer and market data into our merchandising strategies to provide our customers with even greater value.

We grew our private label program, we enhanced our advertising and pricing capabilities to successfully maintain our strong price image with customers, despite a more promotional competitive environment. We reduced clutter and improved adjacencies through better inventory management and the installation of new, more efficient fixturing. Through the completion of our store technology refresh, the expansion of our store operating hours, and our space realignment efforts, we increased the convenience of the Family Dollar shopping experience.

We also made great progress in our efforts to be a more compelling place to work. We strengthened our pay for performance culture and expanded our training and development programs. As a result, we drove continued improvement in our employee retention and internal promotion metric, delivering more consistent execution for customers, increasing productivity and reducing costs.

Finally, our efforts to be a more compelling place to shop and work delivered strong results for our shareholders. Our investments to drive new growth delivered a comparable store sales increase of 4.8%, driven by an acceleration of growth in the second half. Our efforts to maintain gross margin better and contain costs resulted in 110 basis points of operating margin expansion and another year of double-digit earnings per share growth, even as we invested aggressively to position Family Dollar for future growth. And we increased our overall return on shareholders' equity to approximately 25%, the strongest level in more than 10 years.

I'm very proud of our achievements and performance, and want to recognize the hard work and effort of all of our Family Dollar team members.

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