Family Dollar hit by promotional environment

Family Dollar hit by promotional environment

US discount retailer Family Dollar Stores announced a management shake-up yesterday (9 January) after it unveiled a drop in first-quarter earnings and lowered its guidance for the year.

In the three months to the end of November, net profit fell to US$78m, down from $80.3m in the comparable period of last year. Operating profit fell to $120.3m, down from $126.9m in fiscal 2013.

The US dollar store said revenues came under pressure as the promotional environment "intensified". The company witnessed a decline in customer transactions in the period and like-for-like sales dropped 2.8%. Total sales increased 3.2% to $2.5bn but the gain failed to hit expectations.

The company announced COO Michael Bloom has left to "pursue other interests" and a search for his replacement is being conducted. Family Dollar has also promoted Jason Reiser, SVP of merchandising, to the position of chief merchandising officer.

Family Dollar lowered its earnings expectations for the full year. The company said that it now expects earnings to be down on last year and forecast EPS of $3.25 to $3.55, compared with $3.83 for 2013.

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Family Dollar Reports First Quarter 2014 Financial Results

01/09/2014
  • Net Sales Increased 3.2% and Comparable Store Sales Decreased 2.8%
  • Earnings Per Diluted Share of $0.68
  • Company Announces Departure of President
  • Management Provides Updated Guidance for FY14

MATTHEWS, N.C.--(BUSINESS WIRE)-- Family Dollar Stores, Inc. (NYSE: FDO) today reported that for the first quarter of fiscal 2014 ended November 30, 2013, net sales increased to $2.5 billion and net income per diluted share for the quarter was $0.68.

“Today, we reported sales and earnings for the first quarter of fiscal 2014 that were in-line with our previously provided guidance. As expected, comparable stores sales were pressured, as we anniversaried strong consumable sales growth last year. In addition, our core customers continued to face economic uncertainties, and the promotional environment intensified,” said Howard R. Levine , Chairman and CEO. “While the top line was pressured, we expanded gross margin and managed inventory levels well. In addition, we continued to make progress in our longer-term initiatives. We opened 126 new stores and renovated, relocated or expanded 179 stores. We also expanded our penetration of private brands, increased our percentage of direct imports, and improved our store manager retention.”

Fiscal 2014 First Quarter Results

Net sales for the first quarter ended November 30, 2013 increased 3.2% to $2.5 billion compared to $2.4 billionin the first quarter of fiscal 2013 ended November 24, 2012. Sales were strongest in the Consumables category, which increased 4.7% during the quarter, driven primarily by strong growth in refrigerated and frozen food, health aids, and tobacco. Comparable store sales for the comparable 13-week period ended November 30, 2013decreased 2.8% as a result of decreased customer transactions and a slight decrease in the average customer transaction value.

Gross profit for the quarter increased 3.6% to $856.8 million, or 34.3% of net sales, compared to $826.8 million, or 34.1% of net sales, in the first quarter of fiscal 2013. As a percentage of sales, higher markups and lower freight expense were partially offset by the impact of stronger sales of lower-margin consumables, increased inventory shrinkage, and higher markdowns.

Selling, general and administrative (SG&A) expenses, as a percentage of net sales, were 29.5% in the quarter compared to 28.9% in the first quarter of fiscal 2013. SG&A expenses decreased 1.4% on an average per-square-foot basis. The expense de-leverage during the quarter was primarily driven by the decrease in comparable store sales. As a percentage of net sales, higher store occupancy costs and store payroll were partially offset by lower advertising, insurance and incentive compensation costs.

The effective income tax rate in the quarter was 35.4% as compared to 36.4% in the first quarter of fiscal 2013. The decrease in the effective tax rate in the first quarter of fiscal 2014, as compared to the first quarter of fiscal 2013, was due primarily to foreign tax benefits associated with our global sourcing efforts and an increase in federal jobs tax credits partially offset by an increase in uncertain tax positions.

Net income for the quarter was $78.0 million compared with net income of $80.3 million for the first quarter of fiscal 2013.

The Company’s merchandise inventories at November 30, 2013, increased 3.4% to $1.65 billion compared with$1.59 billion at November 24, 2012. Average inventory per store at the end of the quarter was approximately 2.7% lower than the average inventory per store at the end of the first quarter of fiscal 2013.

In the quarter, capital expenditures were $112.5 million compared with $196.4 million in the first quarter of fiscal 2013. In the first quarter of fiscal 2014, the Company spent $42.8 million related to new stores; $30.7 million on our store renovation program; $20.2 million related to corporate and technology investments; and $14.3 millionon existing stores.

During the quarter, the Company opened 126 new stores, closed one store, and renovated, relocated or expanded 179 stores.

In the first quarter of fiscal 2014, the Company repurchased approximately 1.8 million shares of its common stock for a total cost of $125.0 million. As of November 30, 2013, the Company had the authorization to purchase up to an additional $245.8 million of its common stock.

Management Changes

The Company announced today that Michael K. Bloom , President and Chief Operating Officer, has left the Company to pursue other interests. The Company will conduct a search for a new President and Chief Operating Officer.

“Since joining Family Dollar in 2011, Mike has been a valued part of our team,” said Levine. “We appreciate his contributions to the Company and wish him all the best in his future endeavors.”

Outlook

“Many of the top-line challenges we faced in the first quarter, including a challenged consumer and an intensified promotional environment, have continued to impact our business. Comparable stores sales for December decreased about 3%, driven primarily by a decline in customer transactions. In addition, we reacted to softness in discretionary categories by leveraging promotions more than we originally planned,” said Levine. “Reflecting our December results, our expectations that the macroeconomic trends will continue, and the impact of investments we plan to make to strengthen our value proposition, we have lowered our earnings expectations for the second quarter of fiscal 2014 and the full year.”

“While we have made meaningful progress to improve our execution, our financial performance has not met our expectations,” said Levine. “We have a great business model and ample growth opportunity, and I know we can do better.”

“As we move forward, we are taking steps to drive stronger revenue growth and better financial returns. Our immediate focus is on re-accelerating customer traffic, strengthening our value proposition, and continuing to enhance the relevancy of our assortment. We also intend to maintain our focus on reducing costs while also selectively investing in new stores, our renovation program and supply chain improvements to position our long-term growth.”

“While a difficult operating environment will likely challenge earnings growth in the near-term, I am confident that these investments will improve our competitiveness, strengthen customer loyalty, increase our market share and position us to deliver stronger earnings growth in early fiscal 2015.”

For the second quarter of fiscal 2014, the Company expects that comparable store sales will decline in the low-single-digit range and that earnings per diluted share will be between $0.85 and $0.95 per share compared with$1.21 per share in the second quarter of fiscal 2013. Consistent with the National Retail Federation calendar, the second quarter of fiscal 2013 included 14 weeks, and the Company estimates this extra week contributed approximately $189 million in sales and $0.07 of earnings per diluted share.

For the 52-week year ending August 30, 2014, the Company expects that earnings per diluted share will be between $3.25 and $3.55, compared with $3.83 in fiscal 2013, which was a 53-week year.

Original source: Family Dollar