Family Dollar Stores Inc. (FDO) July 18, 2012 1:00 pm ET Executives 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 Mary A. Winston - Chief Financial Officer, Chief Accounting Officer and Executive Vice President Analysts John Heinbockel - Guggenheim Securities, LLC, Research Division Adrianne Shapira - Goldman Sachs Group Inc., Research Division Daniel R. Wewer - Raymond James & Associates, Inc., Research Division Deborah L. Weinswig - Citigroup Inc, Research Division Scot Ciccarelli - RBC Capital Markets, LLC, Research Division Daniel T. Binder - Jefferies & Company, Inc., Research Division Meredith Adler - Barclays Capital, Research Division Joseph I. Feldman - Telsey Advisory Group LLC David Schwartzman Presentation Kiley F. Rawlins
Today's presentation will include certain information that has not been derived in accordance with generally accepted accounting principles. Reconciliations of such information to the most directly comparable GAAP information are in your handouts and available on our website. As a reminder, this information is intended to provide color and should not be considered a substitute for any GAAP measures.Today, you'll hear from our senior leadership team, including: Howard Levine, Chairman and CEO; Mike Bloom, President and CEO; and Mary Winston, our new CFO. Following the presentations, we will have some time for your questions. But just to level-set expectations, we want to focus today on our longer-term plans and visions. We plan to provide more specific color about the fourth quarter and our expectations for fiscal '13 on our year-end conference call in October. Now I'd like to introduce Howard Levine, Chairman and CEO. Howard R. Levine Thank you, Kiley, and welcome, everyone. I hope it's not too hot out there. Being from down South, it feels pretty comfortable out there to me but I might shed the coat in the Q&A section. Glad to see so many of you have been able to join us today. I know that there are a number of people that are listening in our discussion on our webcast as well, so welcome to all and thanks for coming. Before we get started, I'd like to introduce some of our management team members here. So if you guys would stand and wave to the crowd, that would be great. First, Mike Bloom, our President and COO; Mary Winston, our Chief Financial Officer; Paul White, our Chief Merchandising Officer; Barry Sullivan, the tall guy over here in the corner, Head of Store Operations; Jim Snyder -- can't have a meeting without Jim Snyder, General Counsel; Steve Burt, Vice President and Treasurer; Beth MacDonald, Assistant General Counsel, back in the back there; Mtu Pugh, our VP of Strategy; Mike Vickers, our store's VP for this area, back in the back; Jorge Amador, our RVP up in this market. Jorge is in the back. And if all the red shirts will just stand up, this is the store team in this area. A lot of these guys helped set the store and are doing a terrific job up here. And I'd like to give you guys a round of applause.
It's been almost 2 years since we got together in this same room in New York, but a lot has changed at Family Dollar during this time. We've opened or remodeled approximately 2,100 stores. We have added more than 2,000 consumable items to our assortment, along with some new businesses, and we've welcomed some new talent to our leadership team. And in our stores, we have a lot of change happening right now. Over the last few months, we have asked our teams to implement more initiatives than ever. And I'm very proud to say that they have executed these changes beautifully. More importantly, our customers can now shop an expanded assortment of food and HBA, or health and beauty aids, in all stores.Over the last 2 years, a lot has changed at Family Dollar, but what hasn't changed is our commitment to being a more compelling place to shop, work and invest. Our mission and core values have not changed, but we are thinking differently about the Family Dollar brand. Today, I want to share with you what we want our brand to mean to our customers, our team members and our shareholders, how we are executing against this vision and how we intend to measure our success. Let's start with our vision of what the Family Dollar brand will stand for. When customers see the Family Dollar brand on the front of the store, in a circular or in their community, we want them to know that they can count on Family Dollar to have what they need when they need it. We want them to know that they will save money and get good quality merchandise. We want them to know that they will be able to visit a store that is close and convenient to their home or work and that their total trip should take less than 10 minutes. And we want them to know that they can have a positive store experience in addition to the great value and convenience that we offer.
For team members, we want the Family Dollar brand to represent an organization, where, if you work hard, you can have a very successful career. We want Family Dollar to be known as a place where compensation programs are fair and strong performance is rewarded. We want to be an organization that is recognized for having teams that work together and achieve a common goal. And we want to nurture a work environment that is respectful and recognizes outstanding performance. For our shareholders, we want the Family Dollar brand to stand for a consistent, long-term, strong financial returns and have an efficient capital structure.So now that we've defined what we want the Family Dollar brand to stand for, let's talk about how we're executing to this vision. Let's start with how we're executing our vision for our customers. Since opening our first store more than 52 years ago, we have continued to change and evolve our assortment to serve our customers better. Over the last 5 years, we have increased our assortment of food significantly. And more recently, we have started to increase our selection in HBA. In addition, this year, we have added a number of new consumer brands like Pepsi and entered new businesses like tobacco. As Mike will discuss further, we are working quickly to become more relevant to our customers and drive greater sales productivity per store. Value is the combination of price and quality. And we are committed to protecting and improving the customers' perception of both. Today, we enjoy a strong value perception among customers. Our customers have given us high marks for providing value and maintaining consistently good prices. But maintaining a strong price image isn't about having the lowest price on every item. It's about providing good values on every item and being competitively priced on the right items, that is the items that have the greatest impact on overall price perception. Later this afternoon, we will share more detail about our pricing strategy.
We are also making investments to increase our quality perception. National brands drive greater quality perception. And over the last 2 years, we have increased our selection of national brands in a number of consumable categories, including food and HBA. In addition, our selection of national brands, we are also committed to meeting and exceeding our customers' expectations in our private brand offerings. Every item we place in our stores has a quality standard that must be met to ensure our customer satisfaction. We manage compliance to these standards and develop processes and partnerships that reach across the globe to ensure we deliver value to our customers.Our investments to become more relevant to customers will help us increase the convenience that we offer. Our effort to improve adjacencies through enhanced store layouts will help our customers find what they need faster. And as we open more new stores and increase our footprint, we will offer this increased convenience to even more customers. Finally, we are investing significantly to improve the customer shopping experience. More than just the store renovation program, I view this effort as a platform for change as we work to refresh our entire chain. Our goals are to create a more consistent customer experience across the chain, improve our competitiveness and establish a foundation for future assortment and productivity growth. Specifically, we are rebranding our stores both inside and out. We have improved the navigation and shopability in our stores to make it easier for customers to find what they need quickly. And we have improved our in-stock levels to make sure that we can satisfy her needs better. We have also enhanced the checkout process to improve customer flow and we have raised our customer service expectations. Now here's a picture of store #12, which is in Rock Hill, South Carolina, which is not too far from Charlotte. I actually worked in this store probably 25 years ago. And I'll be honest with you, it was old as heck back then. But this store opened back in the early '60s, thus store #12, and has been a very, very profitable store for us for almost 40 years. Now here's what it looked like after the renovation. Kiley, that can't be right. That looks too good. But that's the store, I promise. It's amazing what happened here, same store. But let me tell you what we did. We built the façade. You can see the raised area there. We added awnings, and overall, made a significant change to the presentation of our brand. From a customers' perspective, this is just like a brand-new store. We also enhanced the interior. We eliminated speed tables, stack-outs, rounders and added new more productive fixtures. We continue to change and improve the layout of the stores. We've moved our fastest-growing categories, food and HBA, to opposite sides of the store to give them both room to grow. And we've changed the placement of gondolas and added height to gondolas to give us more holding capacity and shelf space.
We continue to be very pleased with the performance of our renovated stores. Both customer satisfaction and team member engagement are strong in renovated stores, and we remain pleased with the sales lift and financial returns. We continue to experience about a 10% lift in sales performance from the renovations and the assortment changes we've made. And although it's still early, stores that have anniversary-ed their grand reopenings are comping well on top of their initial lift. More importantly, and what means so much to me, our customers love it.Read the rest of this transcript for free on seekingalpha.com