Inventories swell as Family Dollar boosts beauty

EPS for Q4 projected to be in 62 cents to 70 cents range

MATTHEWS, N.C. — A 25% increase in the health and beauty care product assortments at Family Dollar contributed to overall inventory growth during the company’s third quarter, the retailer announced Wednesday morning with the release of its financial results.

In addition to the major expansion of the health and beauty category at 5,000 of the company’s 6,900 stores, Family Dollar said it also expanded assortments of food by 20%, which, combined with the health and beauty care initiative, resulted in an overall increase in inventory levels of 15%.

The inventory growth in high purchase frequency categories had the desired effect of increasing customer traffic, based on results for the company’s third quarter ended May 28. Increased customer traffic during the period, along with larger transaction sizes, was credited with driving a third-quarter comps increase of 4.7%, which came on top of a prior-year gain of 7%.

While a 4.7% increase driven by strength in consumables is a respectable showing, it was short of the company’s guidance, which called for an increase in the range of 5% to 7%. That caused earnings per share, which increased 18.2% to 91 cents, to fall 4 cents shy of analysts’ consensus estimate of 95 cents.

“We accomplished much this quarter to position us to capture greater market share and execute our longer-term vision for Family Dollar,” Family Dollar chairman and CEO Howard Levine said. “I remain confident that our strategy of providing customers with value and convenience, combined with the impactful investments we are making to improve the shopping experience in our stores and our profitability, will continue to deliver strong shareholder returns.”

Those returns were pressured during the quarter as gross margins declined to 36.2% from 36.6% the prior year due to strong sales of lower margin consumables, increased promotional markdowns and higher transportation costs. The company said those pressures were offset partially by investments in price management capabilities, private brands, global sourcing and lower inventory shrinkage.

The company continued to expand its store base during the first three quarters of its fiscal year with the opening of 206 new stores and closing of 48 stores. That compared with the prior year when 125 stores were opened and 56 stores closed. During the third quarter of this year, there were 367 store renovations giving the company a total of 680 on the year.

More renovations are planned during the fourth quarter, bringing the total figure to 900. Additional store openings also will occur, bringing the total number of new units to 300. The company operated roughly 6,900 stores in 44 states at the end of the quarter.

Looking ahead, fourth-quarter earnings per share are forecast to fall in a range of 62 cents to 70 cents, compared with 56 cents last year while full-year profitability is forecast in a range of $3.08 to $3.16, compared with $2.62 last year.

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