Family Dollar Stores' CEO Discusses Q2 2012 Results - Earnings Call Transcript - TheStreet

Family Dollar Stores (FDO)

Q2 2012 Earnings Call

March 28, 2012 10:00 am ET


Kiley F. Rawlins - Vice President of Investor Relations & Communications

Howard R. Levine - Executive Chairman, Chief Executive Officer and Member of Equity Award Committee

Michael R. Bloom - President and Chief Operating Officer

Kenneth T. Smith - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Aram Rubinson - Nomura Securities Co. Ltd., Research Division

Bernard Sosnick - Gilford Securities Inc., Research Division

Adrianne Shapira - Goldman Sachs Group Inc., Research Division

Stephen Shin - Morgan Stanley, Research Division

Laura A. Champine - Canaccord Genuity, Research Division

Meredith Adler - Barclays Capital, Research Division

Unknown Analyst

Deborah L. Weinswig - Citigroup Inc, Research Division

Matthew R. Boss - JP Morgan Chase & Co, Research Division

Scot Ciccarelli - RBC Capital Markets, LLC, Research Division

John Heinbockel - Guggenheim Securities, LLC, Research Division

Mark K. Montagna - Avondale Partners, LLC, Research Division



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Good morning. My name is Tanya, and I will be your conference facilitator today. 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 F. Rawlins

Thank you, Tanya. Good morning, everyone, and thank you for joining us today. For those of you who have dialed in, please note that we have posted accompanying slides on the Investor Relations page of our website. 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, March 28, 2012. 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.

Our call today will begin with some opening comments from Howard Levine, Chairman and CEO. Then Michael Bloom, President and COO, will share an operational update; and Ken Smith, CFO, will run through our financial results and outlook for the rest of fiscal 2012. [Operator Instructions]

Before I introduce Howard, I'd like to announce that we intend to host an analyst day in New York on July 18. We'll share more details with you as we get closer to the date. Now I'd like to turn the call over to Howard Levine. Howard?

Howard R. Levine

Thanks, Kiley, and good morning, everyone. This morning, we reported our 16th consecutive quarter of double-digit EPS growth. Our investments to drive greater shareholder value are delivering results, and I want to thank all of the Family Dollar team members who have been working hard to serve our customers better and deliver this performance.

Revenue growth is accelerating. Year-to-date, we've opened 184 new stores, and we are on track to achieve the upper end of our plan of 450 to 500 new stores this year. In addition, our investments to expand key consumable categories are gaining momentum and driving greater comp store growth. We are delivering a more compelling shopping experience for our customers. Since launching our renovation program last year, we have refreshed more than 1,300 stores through our renovation effort, providing both existing and new customers with an improved shopping experience and a broader merchandise assortment.

By the end of fiscal 2012, we expect that nearly half of the chain will reflect a newer, more competitive shopping experience. And we have rolled back many of the assortment changes to the rest of the chain so that all of our customers can take advantage of our improved selection and great values. Customers are responding well to these improvements. We are expanding our share of wallet with both lower and more middle-income customers, and we are increasing trip frequency. Sales in renovated stores continue to significantly outperform stores that have not been renovated. Customer satisfaction in renovated stores continues to improve. And overall customer value perception is increasing across the chain.

As we look to the second half of fiscal '12, we are beginning to see some signs that the economy is slowly starting to improve. Yet consumers still face some headwinds, especially from rising gas prices, which could strain discretionary purchases and impact the pace of recovery. Regardless of whether the economic environment is improving or contracting, Family Dollar is well positioned to drive profitable growth. While our results have outperformed many other retailers during the recent recession, I would note that in every instance over the last 40 years, as the economy has improved, Family Dollar has benefited. Historically, as customers have seen their incomes expand, they have increased their spending, particularly in discretionary categories, at Family Dollar. Whether or not this economic recovery is similar to past recoveries remains to be seen. Regardless, I believe that value and convenience will remain an important driver for consumers. That is why we are making significant investments to broaden our assortment and drive market share.

Since the beginning of fiscal 2011, we have expanded our basic SKU assortment by about 15%. Most of these new items have been in food and HBA, which have significant potential to drive market share with little markdown risk. For example, in February, we added 300 new food items to our assortment and eliminated 150 underperforming SKUs. These new items, combined with the additions we introduced last April, have helped to drive an 18% sales increase in the food category so far in fiscal 2012. We believe we have significant opportunity to increase average sales per square foot. Broadening our assortment in key consumable categories will enable us to become more relevant and satisfy more of our customers’ shopping trips. But it will also require additional inventory investment. In the second half of fiscal 2012, we will add even more new merchandise to our stores to enable us to satisfy more shopping trips and drive greater revenues.

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