More shoppers discover Family Dollar

MATTHEWS, N.C. — Increased customer traffic during Family Dollar’s third quarter may have helped the company produce a 4.7% same-store sales increase, however earnings per share that advanced 18.2% to 91 cents were four cents shy of analysts’ consensus estimate of 95 cents.

The respectable 4.7% comp increase was below the company’s guidance of a 5% to 7% gain and came on top of a prior-year gain of 7%, but analysts had higher expectations for total quarterly revenues, which at $2.15 billion were less than expected. The company said the comp increase was the result of increased customer traffic as well as an increase in average customer transactions with the strongest sales performance coming in the consumables and home products categories during the period that ended May 28.

“We accomplished much this quarter to position us to capture greater market share and execute our longer-term vision for Family Dollar,” said Howard Levine, Family Dollar chairman and CEO. “I remain confident that our strategy of providing customers with value and convenience, combined with the impactful investments we are making to improve the shopping experience in our stores and our profitability, will continue to deliver strong shareholder returns.”

Those returns were pressured during the quarter as gross margins declined to 36.2% from 36.6% the prior year due to strong sales of lower margin consumables, increased promotional markdowns and higher transportation costs. The company said those pressures were partially offset by investments in price management capabilities, private brands, global sourcing and lower inventory shrinkage. In addition, a 15% increase in inventories was faster than the 7.8% increase in sales as the company expanded assortments of food and health and beauty in more than 5,000 stores.

The company has also been expanding its store base. During the first three quarters of its fiscal year, Family Dollar opened 206 new stores and closed 48 stores compared to 125 store openings and 56 closings in the first three quarters of the prior year. During the third quarter alone, there were 367 store renovations giving the company a total of 680 on the year.

More renovations are planned during the fourth quarter bring the total figure to 900. Additional store openings will also occur bring the total number of new unit to 300. The company operated roughly 6,900 stores in 44 states at the end of the quarter.

Looking ahead, fourth quarter earnings per share are forecast to fall in a range of 62 cents to 70 cents compared with 56 cents last year while full year profitability is forecast in a range of $3.08 to $3.16 compared with $2.62 last year.

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