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Family Dollar Posts Higher February Sales, Plans N.Y. DC

MATTHEWS, N.C. -- Family Dollar Stores, Inc.'s incursion into the food business is putting a drag on profits, at least in the short term, the discount store chain said yesterday, as it released February and second fiscal quarter sales performance results.

The chain, with 5,601 stores in 44 states, posted sales for the four-week period ended Feb. 26 of about $458.1 million, a 13.3 percent increase from the year-ago period. Sales in existing stores for the month rose about 4.9 percent, including increases of about 5.3 percent in hardlines sales and about 3.8 percent in softlines sales.

For the 13-week period ended Feb. 26, Family Dollar's sales were about $1.6 billion, a 13.1 percent rise over the same period last year. Sales in existing stores for the 13-week period went up about 4.5 percent from last year, including growth of about 5.8 percent in hardlines sales and flat softlines sales.

In a statement, Family Dollar said: "While the company is pleased with the recent sales improvement, sales of lower-margin consumables continue to outpace sales growth. As in the past two quarters, this ongoing shift of the merchandise mix and the continuing adverse impact of shrinkage will negatively impact the gross profit margin in the second quarter ended Feb. 26."

In the second quarter the company also incurred expenses as planned in connection with the urban initiative and the start of the installation in stores of coolers for the sale of perishable goods.

For the 26-week period ended Feb. 26, sales were $2.97 billion, a 12 percent rise from the similar period in the prior fiscal year. Sales in existing stores for the 26-week period grew about 3.6 percent, including an increase of about 5.2 percent in hardlines sales and a decline of about 2 percent in softlines sales.

After receiving clarifying guidance from the SEC, Family Dollar is reviewing and expects to correct its lease accounting practices with regard to store locations. Family Dollar anticipates that the review will be completed by time the company issues its financial results for the second quarter ended Feb. 26, on March 22. This change in accounting practice will have no effect on historical or future cash flows.

As of Feb. 26, the company had 5,600 stores in operation, including 90 stores that opened during the 13-week period ended on that date.

The retailer's plan is for sales in existing stores in the five-week period ending April 2, 2005 to increase in the 3 percent to 5 percent range. Family Dollar expects that sales will be helped by the distribution of an ad circular during the last week of that period.

In other company news, Family Dollar said it will invest $60 million in a regional distribution center it plans to start building late this spring in upstate New York, after receiving the go-ahead from state and local officials.

"We are opening large numbers of stores in the Northeast, right on up to Maine," Family Dollar e.v.p. George R. Mahoney Jr. told Progressive Grocer. Mahoney added that the company currently has about 240 stores in New York State alone. Noting that the closest DC to the Northeast region is at present in Front Royal, Va., he said the new facility "will cut down the stem miles and help us control our freight costs."

Mahoney said the DC is scheduled to open in Spring 2006.

The new facility slated for New York state will come not a moment too soon, since, according to Mahoney, the company is continuing its aggressive expansion: Having opened 500 new stores during its last fiscal year, the company plans to open 500 to 560 this fiscal year. It opened its eighth DC in Marianna, Fla. in January.
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