New doors lift sales at Family Dollar

By Don Hogsett -- Home Textiles Today, 6/28/2004 12:00:00 AM

MATTHEWS, N.C. —

Getting a lift from continued expansion and rising sales, third fiscal quarter profits at Family Dollar Stores Inc. climbed 6 percent, to $73.8 million from $69.6 million last year.

Lifted almost entirely by the opening of new doors, sales at the chain of low-price neighborhood stores advanced 11.3 percent, to $1.3 billion from $1.2 billion during the same period a year ago. But the acid test of same-store sales showed a more modest improvement of just 1.9 percent.

Sales of hardlines improved 3.4 percent during the period, but were offset by a corresponding 3.4 percent drop in sales of softlines, the company reported.

The customer count, as measured by the number of register transactions, was unchanged from the preceding year. The average transaction edged up 1.7 percent, to $8.87.

The retailer said its slender 6 percent gain at the bottom line was achieved in a difficult economic environment, marked by rising energy prices, for its low- to low-middle-income customer base. "Sales of basic consumable merchandise, such as household chemicals, paper products and food, continued to be satisfactory. However, sales of more discretionary merchandise, including hanging apparel, domestics, giftwear and seasonal goods, were below the company's plan," stated Family Dollar.

Average gross margin widened a bit during the third fiscal quarter, but improvement there was offset by rising costs. Margins improved 20 basis points, or two-tenths of a percentage point, to 34.9 percent from 34.7 percent a year ago.

Blunting any margin improvement, however, operating costs climbed at an even faster pace, rising 60 basis points, or six-tenths of a percentage point, to 26 percent of sales from 25.4 percent last year. Measured in absolute dollars, costs increased 14.2 percent, exceeding the 11.3 percent rise in sales, to $341.1 million from $298.8 million.

Taking a bite out of the bottom line and putting a lid on profit growth, inventories shot up 18.2 percent, well in excess of the 11.3 percent sales growth, to $912.5 million from $771.8 million during the prior-year quarter.

The retailer stated, "inventories at the end of the third quarter this year were approximately 8.5 percent higher on a per-store basis than at the end of the third quarter last year. In a difficult sales environment, the company became more aggressive in assuring that the stores were amply stocked with the basic consumable goods customers need day-in and day-out. The additional inventories in the stores are primarily these consumable goods, as apparel inventories were only approximately 1.5 percent higher on a per-store basis."

Family Dollar Inc.