And the dollar stores keep coming

Family Dollar’s third quarter results were not as good as expected, but only marginally so, and the company’s growth strategy and potential to steal traffic from Walmart remain intact.

Family Dollar on Thursday reported results for its third quarter ended May 26 that increased 16.5% to 1.06 a share, a penny shy of analysts’ estimates for the widely followed company. Revenues that increased 9.6% to $2.36 billion were also slightly less than analysts forecast. Same-store sales increased 5% with the strongest performance coming in seasonal, electronics and consumable categories as customer traffic and average transaction sizes were higher.

“I am especially pleased that we delivered these record results even as we launched multiple initiatives late in the quarter to increase our relevancy to the customer and drive greater store productivity,” Levine said. “Delivering stronger shareholder returns begins with increasing sales per square foot, and this quarter, we began to implement a number of initiatives to broaden our consumable assortment and satisfy more of our customers’ shopping trips.”

The Family Dollar results were released during a week that saw its larger rival and more successful competitor, Dollar General, hold a meeting for analysts that further cemented its leadership position in terms of financial performance. Family Dollar is looking to narrow the gap and doing a lot of the things that made Dollar General successful and make both companies a threat to Walmart.

Family Dollar through the first three quarters of the year has opened 287 new stores and now operates 7,267 units, about 3,000 units less than Dollar General, which surpassed 10,000 stores earlier this year.

While Family Dollar isn’t opening stores as rapidly, it is makes significant merchandise moves including the addition of food, health and beauty products, cigarettes and RedBox rental kiosks.

During a conference call, Levine elaborated on the company’s food initiatives by noting, “This year, we plan to expand coolers in about 1,400 stores that are not part of this year's renovation program. In the third quarter, we expanded coolers in about 700 stores and expect to complete the rollout by the end of August.”

The company also began expanding its food assortments by adding 250 items and more are on the way thanks to a relationship with McLane, a company Walmart used to own.
“In mid-September, our new supply chain partner, McLane, will begin to service our stores and we will enhance our selection of refrigerated and frozen food even further,” Levine said. “Our partnership with McLane will enable us to establish a national supply chain for refrigerated and frozen merchandise that will provide both the scale and service to support this growing segment of the business. Once these improvements are in place, I believe we will offer our customers a very competitive selection of food.”

Another key initiative is an increased emphasis on health and beauty products. Assortments were expanded last year and Family Dollar promotes the category aggressively with weekly ads and in store signage.

What’s likely to really move the sales and traffic needle in the months if not years ahead is the availability of cigarettes. Family Dollar has added cigarettes to about 1,300 stores so far and by year end cigarettes will be available at a projected 6,000 locations. Once smokers get wind of the availability of cigarettes at their nearby Family Dollar customer traffic is sure to improve.

To support future growth, Family Dollar in early June began shipping goods from its 10th distribution center in Ashley, Indiana and its expansion westward will be supported by a new DC in St. George, Utah that is supposed to be operation by next summer.


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