Family Dollar Reports Third Quarter Results

Family Dollar Stores, Inc. (NYSE: FDO) today reported that for the third quarter of fiscal 2013 ended June 1, 2013, net sales increased 9.0% to $2.57 billion and net income per diluted share for the quarter was $1.05 as compared to $1.06 in the third quarter of fiscal 2012.

“This morning we reported sales and earnings results for the third quarter that were at the upper-end of our guidance,” said Howard R. Levine, Chairman and CEO. “Our consumables sales remained strong and we continued to gain market share. However, our discretionary sales remained challenged as our customers have been forced to make spending choices between basic needs and wants. Consistent with market trends, we expect that our customers will continue to face financial headwinds. We are adapting accordingly, and we are focused on stabilizing gross margin, controlling expenses, improving inventory productivity, and driving greater operational efficiencies. I am confident that we remain well positioned for long-term profitable growth.”

Fiscal 2013 Third Quarter Results

Net sales for the third quarter ended June 1, 2013, increased 9.0% to $2.57 billion from $2.36 billion in the third quarter of fiscal 2012 ended May 26, 2012. Comparable store sales in the quarter increased 2.9%. The increase in comparable store sales was a result of an increase in the average customer transaction value and higher customer traffic. Sales were strongest in the Consumables category, which increased 14.8% during the quarter, driven primarily by strong growth in food, health and beauty aids, and tobacco.

Gross profit for the quarter increased 5.6% to $892.5 million, or 34.7% of net sales, compared to $845.3 million, or 35.8% of net sales, in the third quarter of fiscal 2012. As a percentage of sales, the impact of stronger sales of lower-margin consumables, increased inventory shrinkage and higher markdowns was partially offset by higher purchase markups and lower freight expense.

Selling, general and administrative expenses, as a percentage of net sales, were 27.4% in the quarter compared to 27.6% in the third quarter of fiscal 2012. As a percentage of net sales, lower advertising and distribution center costs were offset by higher store occupancy costs and store payroll.

The effective income tax rate in the quarter was 36.2% as compared to 35.8% in the third quarter of fiscal 2012. The increase in the effective tax rate was due primarily to changes in uncertain tax positions, partially offset by higher federal tax credits and foreign tax benefits associated with the Company’s global sourcing efforts.

Net income for the quarter was $120.9 million compared to net income of $124.5 million for the third quarter of fiscal 2012.

The Company’s merchandise inventories at June 1, 2013, were $1.47 billion compared with $1.39 billion at May 26, 2012. Average inventory per store at the end of the quarter was 1.0% lower than the average inventory per store at the end of the third quarter of fiscal 2012.

In the first three quarters of fiscal 2013, capital expenditures were $599.7 million compared with $391.4 million in the first three quarters of fiscal 2012. The growth in capital expenditures was primarily due to increased investments in new stores. During the first three quarters of fiscal 2013, the Company spent $242.9 million related to its Fee Development Program, compared to $69.3 million in the first three quarters of fiscal 2012.

During the quarter, the Company opened 129 new stores, closed 3 stores, and renovated, relocated or expanded 228 stores.

Outlook

In the fourth quarter, the Company expects to anniversary many of the sales-driving initiatives that were launched in the fourth quarter of fiscal 2012. Additionally, the Company believes that sales in more discretionary categories will continue to be pressured. Based on June sales trends, the Company expects that comparable store sales in the fourth quarter of fiscal 2013 will increase around 2%. The company also expects that gross margin pressure and SG&A leverage in the quarter will be minimal. The Company believes that earnings per diluted share will be between $0.82 and $0.87 per share compared with $0.69 per share in the fourth quarter of fiscal 2012. Included in the results for the fourth quarter of fiscal 2012 was a litigation charge of $0.06 per diluted share.

The Company now expects that diluted earnings per share in fiscal 2013 will be between $3.77 and $3.82 compared to $3.58 in fiscal 2012. The Company's outlook for fiscal 2013 is based on the following assumptions which may or may not prove valid:

  • An increase in comparable store sales of between 3% and 4%;
  • Approximately 500 new store openings and 30-50 store closings;
  • Gross margin pressure driven primarily by an expanding mix of lower-margin consumables;
  • SG&A leverage driven by an increase in comparable store sales;
  • An effective income tax rate of around 36%;
  • Weighted average diluted shares of approximately 116 million; and
  • Capital expenditures of between $750 million and $800 million primarily to support new store development, store renovations, and expansion of the Company’s supply chain.

Cautionary Statements

Certain statements contained in this press release are “forward-looking statements” that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address certain plans, activities or events which the Company expects will or may occur in the future and relate to, among other things, the state of the economy, the Company’s investment and financing plans, net sales, comparable store sales, cost of sales, SG&A expenses, earnings per diluted share, dividends and share repurchases. Various risks, uncertainties and other factors could cause actual results to differ materially from those expressed in any forward-looking statement. Consequently, all of the forward-looking statements made by the Company in this and in other documents or statements are qualified by factors, risks and uncertainties, including, but not limited to, those set forth under the headings titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in the Company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission up to the date of this release.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company does not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

Earnings Conference Call Information

The Company plans to host a conference call with investors today, July 10, 2013, at 10:00 a.m. ET to discuss the results. The Company will also provide an update on various business initiatives and discuss plans and expectations for the rest of fiscal 2013. After some prepared remarks by management, participants will have an opportunity to ask questions. The Company’s responses to questions, as well as other matters discussed during the conference call, may include information that has not been disclosed previously.

If you wish to participate, please call (800) 890-0881 for domestic US calls and (719) 325-2295 for international calls at least 10 minutes before the call is scheduled to begin. The passcode for the conference call is 3827795 or “FAMILY DOLLAR.”

A live webcast of the conference call with accompanying slides can be accessed at the following link:

http://www.familydollar.com/investors.aspx?p=irhome .

A replay of the webcast will be available at the address noted above after 11:00 a.m. ET, July 10, 2013.

About Family Dollar

For more than 50 years, Family Dollar has been providing value and convenience to customers in easy-to-shop neighborhood locations. Family Dollar’s mix of name brands and quality, private brand merchandise appeals to shoppers in more than 7,800 stores in rural and urban settings across 45 states. Helping families save on the items they need with everyday low prices creates a strong bond with customers, who often refer to their neighborhood store as “my Family Dollar.” Headquartered in Matthews, North Carolina, just outside of Charlotte, Family Dollar is a Fortune 300, publicly held company with common stock traded on the New York Stock Exchange under the symbol FDO. For more information, please visit www.familydollar.com.
 
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                 
 
For the Third Quarter Ended*
(in thousands, except per share amounts)

June 1,

2013
   

% of Net

Sales
 

May 26,

2012
   

% of Net

Sales
 
Net sales $ 2,573,506 100.00 % $ 2,359,957 100.00 %
 
Cost of sales   1,681,048     65.32 %   1,514,684     64.18 %
 
Gross margin 892,458 34.68 % 845,273 35.82 %
 
Selling, general and administrative expenses   704,038     27.36 %   652,014     27.63 %
 
Operating profit 188,420 7.32 % 193,259 8.19 %
 
Investment income 91 0.00 % 274 0.01 %
 
Interest expense 6,071 0.24 % 5,635 0.24 %
 
Other income   7,196     0.28 %   6,147     0.26 %
 
Income before income taxes 189,636 7.37 % 194,045 8.22 %
 
Income taxes   68,698     2.67 %   69,505     2.95 %
 
Net income $ 120,938 4.70 % $ 124,540 5.28 %
 
Net income per common share - basic $ 1.05 $ 1.07
Weighted average shares - basic 114,977 116,815
 
Net income per common share - diluted $ 1.05 $ 1.06
Weighted average shares - diluted 115,478 117,633
 
Dividends declared per common share $ 0.26 $ 0.21
 
*Certain reclassifications of the amounts for fiscal 2012 have been made to conform to the presentation for fiscal 2013.

 
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
               
 
For the First Three Quarters Ended*
(in thousands, except per share amounts)

June 1,

2013
   

% of Net

Sales

May 26,

2012
   

% of Net

Sales
 
Net sales $ 7,889,191 100.00 % $ 6,966,880 100.00 %
 
Cost of sales   5,202,889     65.95 %   4,506,636     64.69 %
 
Gross margin 2,686,302 34.05 % 2,460,244 35.31 %
 
Selling, general and administrative expenses   2,153,936     27.30 %   1,921,647     27.58 %
 
Operating profit 532,366 6.75 % 538,597 7.73 %
 
Investment income 275 0.00 % 716 0.01 %
 
Interest expense 19,968 0.25 % 18,772 0.27 %
 
Other income   20,984     0.27 %   16,847     0.24 %
 
Income before income taxes 533,657 6.76 % 537,388 7.71 %
 
Income taxes   192,295     2.44 %   196,079     2.81 %
 
Net income $ 341,362 4.33 % $ 341,309 4.90 %
 
Net income per common share - basic $ 2.96 $ 2.91
Weighted average shares - basic 115,321 117,331
 
Net income per common share - diluted $ 2.95 $ 2.89
Weighted average shares - diluted 115,869 118,176
 
Dividends declared per common share $ 0.68 $ 0.60
 
*Certain reclassifications of the amounts for fiscal 2012 have been made to conform to the presentation for fiscal 2013.

         
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
As of*
June 1, May 26,
(in thousands, except per share and share amounts) 2013 2012

Assets
Current assets:
Cash and cash equivalents $ 123,462 $ 120,901
Short-term investment securities 26,665 21,006
Restricted cash and investments 57,897 82,197
Merchandise inventories 1,474,410 1,387,380
Deferred income taxes 71,305 53,212
Income tax refund receivable 4,294 -
Prepayments and other current assets   143,881   44,137
Total current assets 1,901,914 1,708,833
 
Property and equipment, net 1,832,178 1,420,034
Investment securities 23,366 60,888
Other assets   92,946   83,289
 
Total assets $ 3,850,404 $ 3,273,044
 

Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 219,000 $ -
Current portion of long-term debt 16,200 16,200
Accounts payable 680,118 695,292
Accrued liabilities 351,422 300,290
Income taxes   8,429   25,285
Total current liabilities 1,275,169 1,037,067
 
Long-term debt 500,237 516,283
Other liabilities 283,442 259,333
Deferred gain 214,179 68,768
Deferred income taxes 56,233 79,099
Commitments and contingencies
 
Shareholders' Equity:

Preferred stock, $1 par; authorized and unissued 500,000 shares

Common stock, $.10 par; authorized 600,000,000 shares
12,000 11,911
Capital in excess of par 293,523 256,898
Retained earnings 1,497,311 1,153,453
Accumulated other comprehensive loss (1,441) (3,750)
Common stock held in treasury, at cost   (280,249)   (106,018)
Total shareholders' equity   1,521,144   1,312,494
 
Total liabilities and shareholders' equity $ 3,850,404 $ 3,273,044
 
*Certain reclassifications of the amounts for fiscal 2012 have been made to conform to the presentation for fiscal 2013.

         
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
For the First Three Quarters Ended*
(in thousands) June 1, 2013 May 26, 2012
Cash flows from operating activities:
Net income $ 341,362 $ 341,309
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 176,895 153,482
Amortization of deferred gain (11,037 ) (352 )
Deferred income taxes (682 ) 3,336
Excess tax benefits from stock-based compensation (13,360 ) (12,234 )
Stock-based compensation 13,015 14,033

Loss on disposition of property and equipment, including impairment
5,018 10,331
Changes in operating assets and liabilities:
Merchandise inventories (48,247 ) (232,720 )
Prepayments and other current assets (96,249 ) 27,308
Other assets (1,877 ) (1,242 )
Accounts payable and accrued liabilities (26,889 ) (72,275 )
Income taxes (27,723 ) 30,637
Other liabilities   15,125     (7,766 )
  325,351     253,847  
 
Cash flows from investing activities:
Purchases of investment securities (43,475 ) (92,559 )
Sales of investment securities 22,638 217,017
Net change in restricted cash 63,161 (90,930 )
Capital expenditures (599,685 ) (391,418 )
Net proceeds from sale-leaseback 163,520 177,552
Proceeds from dispositions of property and equipment   2,780     739  
  (391,061 )   (179,599 )
 
Cash flows from financing activities:
Short-term borrowings 1,753,000 306,300
Repayment of short-term borrowings (1,549,000 ) (306,300 )
Repayment of long-term debt (16,200 ) (16,200 )
Repurchases of common stock (74,954 ) (91,573 )
Changes in cash overdrafts 31,495 43,016
Proceeds from exercise of employee stock options 17,572 24,620
Excess tax benefits from stock-based compensation 13,360 12,234
Payment of dividends   (78,434 )   (66,849 )
  96,839     (94,752 )
 
Net change in cash and cash equivalents 31,129 (20,504 )
Cash and cash equivalents at beginning of period   92,333     141,405  
Cash and cash equivalents at end of period $ 123,462   $ 120,901  
 
*Certain reclassifications of the amounts for fiscal 2012 have been made to conform to the presentation for fiscal 2013.

       
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
Selected Additional Information
     
 
NET SALES BY CATEGORY:

For the Third Quarter Ended
June 1,

May 26,
(in thousands) 2013 2012 % Change  
Consumables $ 1,866,714 $ 1,626,004 14.8 %
Home products 264,268 270,015 -2.1 %
Apparel and accessories 206,523 226,783 -8.9 %
Seasonal and electronics   236,001     237,155   -0.5 %
TOTAL $ 2,573,506 $ 2,359,957 9.0 %
 

For the First Three Quarters Ended
June 1,

May 26,
(in thousands) 2013 2012 % Change  
Consumables $ 5,667,499 $ 4,723,782 20.0 %
Home products 828,833 842,900 -1.7 %
Apparel and accessories 591,439 618,930 -4.4 %
Seasonal and electronics   801,420     781,268   2.6 %
TOTAL $ 7,889,191 $ 6,966,880 13.2 %
 
 
STORES IN OPERATION:

For the Three Quarters Ended
June 1, May 26,
2013 2012
Beginning Store Count 7,442 7,023
New Store Openings 380 287
Store Closings   (21 )   (43 )
Ending Store Count 7,801 7,267
Total Square Footage (000s) 67,016 62,362
Total Selling Square Footage (000s) 55,994 51,945

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