Family Dollar Q2 Net Income Decline Prompts Business Review

In what the company characterized as a disappointing 13-week fiscal 2014 second quarter, Family Dollar Stores, Inc. posted net income of $90.9 million, or 80 cents per diluted share, versus $140.1 million, or $1.21 per diluted share, in the 14-week year-earlier period.

Comparable store sales for the second quarter slipped 3.8% as a result of a decline in customer transactions, partially offset by an increase in the average customer transaction value, Family Dollar maintained. Second quarter sales were strongest in the Consumables category, driven primarily by strong growth in refrigerated and frozen food and tobacco, the company added.

Net sales were $2.72 billion versus $2.89 billion in the second quarter of fiscal 2013, the company reported. Operating profit was $140.3 million versus $217 million in the fiscal 2013 period.

Family Dollar estimated that the extra week in fiscal 2013 contributed $189 million in sales and seven cents of earnings per diluted share to results. Further, the company estimated that the negative financial impact of adverse weather in the fiscal 2014 second quarter was five cents of earnings per diluted share.

“Our second quarter results did not meet our expectations,” Howard Levine, Family Dollar chairman and CEO, said in relaying the financial results. “The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer. In addition, like many retailers, our second quarter results were significantly impacted by severe winter weather, which resulted in numerous store closings, disrupted merchandise deliveries and higher than expected utility and store maintenance expenses. Notwithstanding the macro-economic pressure, competitive environment and severe weather, we are not satisfied with our results, and we hold ourselves accountable for improving our performance. To that end, we have initiated an in-depth business review to identify opportunities to strengthen our value proposition, increase operational efficiencies and improve financial performance.”

As the business review commences, Levine said, “we are taking immediate, strategic actions to improve our performance. First, we have made a significant investment to lower prices on about 1,000 basic items. Second, we are reducing our cost structure through the optimization of our workforce. Third, we will close approximately 370 underperforming stores. Once complete, our workforce reduction efforts and store closures are expected to result in $40 million to $45 million of annualized operating profit benefit, beginning in the third quarter of fiscal 2014. Lastly, we intend to slow new store growth beginning in fiscal 2015 to improve our return on investment. We are confident that these steps will position Family Dollar to deliver stronger returns for our shareholders.”

Family Dollar operates about 8,100 stores in 46 of the United States. Through the first two quarters of fiscal 2014, it opened 244 new stores, closed 22 stores and renovated, relocated or expanded 319 stores, it maintained.