More competition on the dollar store front

Family Dollar is at the midpoint of its fiscal year, and on track to open a total of 300 new stores, the company announced in conjunction with the release of it second-quarter financial results. Dollar stores have emerged as a key competitive threat to Walmart as they have beefed up assortments of food and consumables and their abundant stores are often more convenient than Walmart’s supercenters. A few weeks earlier, Dollar General said it would open 625 stores during it fiscal year.

Dollar General is on track to operate a total of 10,000 units by this time next year while Family Dollar is poised to surpass 7,000 units by the end of its current fiscal year. The company’s profit durng is second quarter ended Feb. 27 grew by nearly 10% to $123.2 million and sales advanced 8.3% to nearly $2.3 billion. Earnings per share for the period increased 21% to 98 cents compared with 81 cents in the second quarter the prior year.

“Over the last several years, we have accelerated capability-building investments and increased our efforts to improve the in-store shopping experience. These investments have provided a solid foundation for the successful launch of our strategic plan to re-accelerate revenue growth, expand operating margins and optimize our capital structure,” said Howard Levine, chairman and CEO of Family Dollar. “Our performance year-to-date illustrates that we are effectively leveraging these enhanced capabilities and executing well against our business plan and delivering superior value for shareholders.” 

The second-quarter saw the company again produce solid same-store sales growth of 5.1%, which it said was almost entirely the result of more customers shopping its stores as determined by the number of transactions. A modest increase in the value of the average customer transaction also contributed to the comp gain. Sales during the quarter were strongest in the consumable and seasonal categories, according to the company.

The rate of profitability improved slightly, as Family Dollar’s gross margins for the second quarter were 35.7% compared with 35.4% the prior year due largely to less shrinkage, which more than offset higher transportation costs. The shrinkage reduction occurred even though average inventories per store increased by 10% as Family Dollar stocked up on consumables. The company’s expense rate was essentially flat with the prior year at 26.82% compared with 26.77%.

Looking forward to the back half of its fiscal year Family Dollar is expecting continued growth and improved profits. Third-quarter and full-year comps are projected to be in the range of 5% to 7%. Third-quarter earnings per share are forecast in the range of 92 cents to 97 cents, compared to 77 cents last year and full year profitability is projected to be $3.13 to $3.23 a share compared with $2.62 last year.