July 20, 2014
Just a month after activist investor Carl Icahn became Family Dollar’s largest shareholder prompting concerns of a hostile takeover, the company reported its third straight quarterly decline in same-store sales.
Same-store sales for the third quarter ended May 31 decreased 1.8% because of fewer customer transactions, partially offset by an increase in the average customer transaction value. Sales in the third quarter of fiscal 2014 were strongest in the consumables category, driven primarily by strong growth in refrigerated/frozen food and tobacco.
Meanwhile, net sales increased 3.3% to $2.66 billion from $2.57 billion in the prior-year quarter.
“We are executing our previously announced restructuring initiatives to improve our performance,” said chairman and CEO Howard R. Levine. “Our recent investment to permanently lower prices is resonating with customers; we are seeing savings from our workforce optimization efforts; and we are on track to close approximately 370 underperforming stores by the end of the fiscal year. We remain confident that these steps will position the company to improve our financial performance and deliver higher long-term shareholder returns.”
Levine said that the company’s results reflected not only economic challenges facing its core customers but also an intense competitive environment. But he’s remaining positive because although same-store sales did drop for the quarter, they actually improved in all four merchandise categories compared to its second-quarter results – a sign of improving trends.
Gross profit for the quarter was $910.9 million or 34.3% of net sales. During the quarter, the company implemented a series of restructuring initiatives, including plans to close approximately 370 underperforming stores across the chain by the end of fiscal 2014. As a result, the company incurred a $1.5 million inventory write-down in an effort to sell through merchandise at stores scheduled to close.
Excluding the inventory write-down, adjusted third quarter gross profit increased 2.2% to $912.3 million, or 34.3% of net sales, compared to $892.5 million, or 34.7% of net sales, in the third quarter of fiscal 2013. As a percentage of sales, the impact on gross profit of stronger sales of lower-margin consumables, lower markups and higher markdowns was partially offset by lower inventory shrinkage.
During the quarter, the company opened 111 new stores, closed 3 stores and renovated, relocated or expanded 266 stores.
As part of its ongoing business review, the company lowered prices on nearly 1,000 basic items, investing more than $50 million, on an annualized basis, to deliver more compelling values to customers. It has also made plans to slow new store growth beginning in fiscal 2015. The company now expects to open 350-400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014.
In an effort to drive more profitable growth, the company is also investing in longer-term initiatives, which include further expanding its cooler program beginning in fiscal 2015 and expanding traffic-driving categories with a multi-year rollout of beer and wine likewise beginning in fiscal 2015.
Looking ahead to the fourth quarter, the company expects that comparable store sales will be approximately flat and that earnings per diluted share will be between $0.75 and $0.85, excluding approximately $0.37 related to restructuring charges. Including the restructuring charges, the company expects earnings per diluted share will be between $0.38 and $0.48.
Source: Retailing Today
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