As consumers tighten belts, Family Dollar responding

Tag : Mini Mats

Shoppers are driving less. They're focusing on necessities more.Family Dollar can work with that.
The Matthews-based retailer reported Wednesday that itsthird-quarter profit rose 7.1 percent, thanks in part tocompanywide belt-tightening and increased sales of household itemssuch as food, paper products and detergent.
The better-than-expected net income of $64.7 million, or 46 cents ashare, in the quarter that ended May 31 compare with $60.4 millionfor the same period last year. Analysts had predicted earnings of40 cents a share.
Net sales also increased, to $1.7 billion, up from $1.65 billion in2007.
Though sales at stores open a year or more, an important gauge ofretail health, increased only 0.1 percent, expense and inventorycontrol helped boost the bottom line, chairman and CEO HowardLevine said Wednesday. Family Dollar also felt early, positiveeffects from the federal economic stimulus package, which shouldcontinue for the next few months, officials said in a conferencecall.
“While we're not recession-proof, we are somewhat recessionresistant,” Levine said in an interview. “In today'sworld, people are looking for value and convenience more than ever,and … those retailers that offer both value and convenienceshould do well in a difficult economy and actually gain share. Allthat being said, we'd like to see a strong economy.”
Though Family Dollar and its chief competitor, Nashville-basedDollar General, both have “dollar” in the name, neithersells items priced exclusively at $1. Instead, both are likemini-discount stores located in neighborhoods, stocked with food,clothing, cleaning products, toys, health and beauty products andhome goods such as bath mats.
As a result, the current economy presents a divide: Customers areeager to stock up on milk, bread and laundry detergent close tohome, but will buy more discretionary items like apparel andseasonal items only when they have the money – which, in thecurrent economy, isn't as often as in the past. Because food, forinstance, has a lower profit margin than apparel, that can affectretailers' balance sheets.
At the Family Dollar on Tyvola Road at West Boulevard Wednesday, asteady stream of shoppers browsed the aisles and queued at theregister around lunchtime. For the most part, they were buying thehousehold items that have buoyed Family Dollar's sales in thedownturn: paper towels, cereal, juice, laundry detergent.
“Cereal, milk, tissue, soap, from shampoo to you name it,we're in here getting it,” said customer Kametria Boyd, 35.“I go to a grocery store for food, but if I'm out of one ortwo items, it's more convenient to come in here.”
Boyd, a customer service representative who lives around the cornerfrom the store, said she shops Family Dollar because she's on abudget and knows her money will stretch a bit further there. Sincethe economic crunch began about six months ago, she said, it'sespecially been her store of choice.
With gas over $4 a gallon, shopping close to home is important,said Pamela Ragin, 48, and boyfriend Ronald Robinson, 55, ofCharlotte, as they examined tank tops at the store. Nearby, Ragin'sgrandson Kamani Ragin, 2, sat in a cart with a new puzzle and bookjust plucked from the shelves.
“We come pretty frequently, just basically for householdthings,” Ragin noted.
Gas prices should help dollar stores, at least in the short term,because their largely middle-to-lower-income customers may not beas likely to drive out to the suburbs – and to big boxes– to shop, said Britt Beemer, chairman and founder ofCharleston-based America's Research Group.
Rebounding after slump
Family Dollar's earnings slumped 30 percent in its previousquarter, which ended in March 1. But by then the company wasalready in the midst of taking steps to adjust, Levine said. Afternoticing “a big slowdown” in November, he said, FamilyDollar increased its focus on selling consumables – laundry,food, cleaning and paper products.
Changes are continuing, he said. They include ongoing efforts toremodel and reorganize stores and install a new transaction systemthat will enable all stores to take food stamps, debit and creditcards. Currently, a little less than half of the company's morethan 6,500 stores have that capability.
Those improvements should leave the company better positioned tocapture business from more middle-income customers looking forvalue, Levine said.
In the current quarter, Family Dollar expects same-store sales toincrease 4 percent to 6 percent and it boosted its earnings outlookfor the year to between $1.58 and $1.63 per share, up from the$1.50 to $1.60 predicted last quarter.
That's largely due to warmer weather and the federal economicstimulus checks, which had only just begun to arrive by the end ofMarch-May quarter. Their fuller impact should be felt in thecurrent quarter. The gains this spring were largely due toinitiatives such as keeping smaller inventories of discretionaryitems, changing truck routes to use less diesel and consolidatingpurchases of supplies and services.
Wednesday's earnings release and the company's optimism for thecoming quarters cheered analysts. “We continue to believemanagement is making the correct fundamental changes in thecompany's business model,” Wayne Hood of BMO Capital Marketswrote in a research note Wednesday.
“(The results are) great credit to them,” Lehman Bros.analyst Meredith Adler said in an interview. “They did anabsolutely amazing job of managing expenses. … I think thiswas an exceptionally good quarter.”
Nonetheless, Family Dollar executives know the tide could turn. OnWednesday, they said they expected sales to drop off once theeffects of the stimulus check wore off.
“They're pretty realistic that once the benefit of thestimulus is gone, it's likely that sales will go back to beingquite weak,” Adler said. “They're doing everything theyshould be doing, but they obviously have zero control over the gasprices or employment or food prices.”