Consumables, tobacco, BPC see big sales boosts at Family Dollar in FY2013

Discount store chain is 'cautious' looking ahead to FY2014

MATTHEWS, N.C. — More than 1,000 new and relocated stores and an increase in a partnership with supply chain services firm McLane Co. were among the highlights in fourth quarter fiscal year 2013 at Family Dollar, the discount store chain said Wednesday.

The company opened 500 new stores during the fiscal year and relocated, renovated or expanded 830, and plans to open another 525 and redo 850 in fiscal year 2014. Chairman and CEO Howard Levine said in a conference call with financial analysts Wednesday morning that by the end of the fiscal year about 75% of the chain will "reflect a much-improved shopping experience."

Tobacco products are helping to drive trips at the 7,900-store chain, with Levine calling them a "nice byproduct" of its refrigerated and frozen food supply chain and relationship with McLane. Basket sizes have remained consistent since the company added tobacco. "The McLane relationship continues to be a key differentiator and accretive to earnings," president and COO Mike Bloom said during the call, adding that the average ticket with tobacco and other items is about $17. Bloom also said the company launched about 1,000 new SKUs in food, health and beauty. Total sales for private labels increased by about 10% and by 20% for private label consumables; the company plans to introduce about 200 private-label SKUs in fiscal year 2014.

On the logistics front, the company is rolling out a pallet delivery program, which streamlines freight delivery and restocking, placing goods on pallets according to department and allowing them to be cleanly stacked and taken directly to the sales floor. Bloom said the new system had increased efficiency and was popular with employees, and that it was planning on rolling it out to all its distribution centers. Meanwhile a new surveillance system called Checkpoint will offer "superior technology at a lower cost" and allow the tagging process to be taken upstream to distribution centers and suppliers, freeing up store employees to improve customer service.

The company reported sales of $2.5 billion, a 5.8% increase over fourth quarter 2012, as well as fiscal 2013 sales of $10.4 billion, an 11.4% increase over fiscal year 2012's $9.3 billion. Profits were $102.2 million for the quarter and $443.6 million for the fiscal year, compared with $80.9 million and $422.2 million, respectively, during the same periods last year. Same-store sales in the fourth quarter were flat, as was average customer transaction value, while increasing by 3% for the fiscal year, thanks largely to increased customer traffic and ab increase in average customer transaction value. Overall, food, health and beauty aids, tobacco and other similar categories saw a 16.9% increase in sales during the year and an 8.3% increase during fourth quarter.

Looking ahead, Levine said the company would be cautious in fiscal year 2014 given the challenges faced by consumers, such as higher taxes, uncertainly in Washington and a tepid economy. The company expects a mid-single-digit increase in total net sales and a low-single-digit increase in same-store sales. In addition, CFO Mary Winston said the company expects the Patient Protection and Affordable Care Act to cost the company between $10 to $12 million, calling it "a big headwind."

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