Sales Up But Profits Flat at Family Dollar

Matthews, N.C. — Hit by a change in accounting, then squeezed by thinning margins and rising costs, second quarter profits at Family Dollar Stores were virtually flat with year-before levels despite a double-digit gain in sales.

Earnings during the period dipped slightly, 0.4 percent, to $80.1 million from $80.4 million during the same period a year ago. Taking a modest bite out of the bottom line, and reducing earnings by about $700,000 during the period, was a change in lease accounting practices. Excluding the non-cash charge, earnings were still virtually unchanged, inching up just 0.4 percent, to $80.8 million.

Putting additional pressure on earnings, and offsetting gains in sales and same-store sales, were weaker margins and higher costs. Average gross margin narrowed 100 basis points, or 1 percentage point, to 32.8 percent from 33.8 percent a year ago, as sales of lower-margin basic consumables ran stronger than sales of higher-margin discretionary goods. In addition to the shift in mix, rising freight costs put steady downward pressure on margins.

Costs edged up 20 basis points, or two-tenths of a percentage point, to 24.9 percent of sales from 24.7 percent, driven higher by urban initiatives and the installation of coolers for the sale of perishable goods.

On the upside, sales improved 13.1 percent, to $1.6 billion from $1.4 billion last year, while the crucial gauge of same-store sales improved 4.5 percent. Sales of hard lines rose 5.8 percent, and soft lines sales were unchanged.