Family Dollar Stores (FDO)

Q4 2011 Earnings Call

September 28, 2011 10:00 am ET

Executives

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

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

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

R. James Kelly - President and Chief Operating Officer

Analysts

John Heinbockel - Guggenheim Securities, LLC, Research Division

Charles X. Grom - Deutsche Bank AG, Research Division

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Meredith Adler - Barclays Capital, Research Division

Deborah L. Weinswig - Citigroup Inc, Research Division

Adrianne Shapira - Goldman Sachs Group Inc., Research Division

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

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Presentation

Operator

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Good morning. My name is Vicky, 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, Vicky. 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 that 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 the 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 28, 2011. 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, Vice Chair; and Ken Smith, Chief Financial Officer. We'll begin our discussion this morning with a review of fiscal 2011, and then we'll take a few minutes to discuss our plans and outlook for 2012. Because of the amount of the information we intend to discuss, our prepared remarks this morning will be longer than usual. We will host a question-and-answer session after our prepared remarks. Please remember that the queue for the question-and-answer session will not be available until we have concluded our prepared comments. Now I'd like to turn the call over to Howard Levine. Howard?

Howard R. Levine

Thank you, Kiley, and good morning, everyone. This morning, we reported another year of strong earnings growth, with earnings per diluted share increasing 19.1% to $3.12 per share. Importantly, we made meaningful progress in our efforts to accelerate revenue growth, expand operating margin and optimize our capital structure.

Our customer base is expanding, and our relationship with our customers is getting stronger. In fiscal '11, we increased our brand awareness, strengthened our value perception and improved customer satisfaction. Through our renovations, the continued expansion of our Consumable assortment and improvements in store-level execution, we continued to enhance the customer shopping experience in our stores. As a result, comp store sales increased 5.5% for the year. This performance, combined with the addition of 238 net new stores, resulted in an acceleration of revenue growth to 8.7%.

Despite challenges from an increasingly inflationary environment and adverse merchandise mix and an ambitious investment agenda, we leveraged SG&A to drive continued operating margin expansion and reported our 14th consecutive quarter of double-digit earnings per share growth. Finally, we optimized our balance sheet and increased shareholder returns. In fiscal '11, we repurchased $670 million of the company's common stock and distributed approximately $83 million in dividends.

We completed an initial public debt offering of $300 million in 10-year notes and secured an investment grade rating from both Standard & Poor's and Moody's Investor Services. And we increased our return on shareholder's equity to approximately 32%.

The progress we have made this year positions us well to further improvement in fiscal '12. As we will discuss in a moment, our plans for fiscal '12 reflect an acceleration of the investments that drove value in fiscal '11. We are pursuing an ambitious growth agenda to expand our market share and drive greater financial returns, and we continue to build our leadership team to better support our growth aspirations.

In February of this year, Paul White joined us as Senior Vice President of Apparel, Home and Seasonal. And last week, we announced the appointment of Trey Johnson, Senior VP of Food, to help us further develop the Food strategy.

Reflecting the investments we have made in our leadership development efforts and our succession planning processes, yesterday, we announced additional changes to our leadership structure. First, Jim Kelly is retiring. During his 15-year tenure at Family Dollar, Jim has had a significant impact on almost every aspect of our business. Upon joining the company, he provided leadership, as we built infrastructure, accelerated new store growth and improved profitability. As President and Chief Operating Officer, he has provided strong strategic and operational vision, and I sincerely appreciate his partnership and support.

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