Family Dollar Reports Profit Loss; Says Perishables Among Key Growth Initiatives

MATTHEWS, N.C. - Discount chain Family Dollar Stores, Inc. yesterday reported a 9.9 percent decline in its profits for the fourth quarter ended Aug. 28, 2004.

The Matthews, N.C.-based retailer, which operates 5,481 stores in 44 states, also said it plans to add coolers for perishable food in selected stores, among other initiatives to drive growth in 2005.

Family Dollar's net income for the fourth quarter was $43.0 million, which was 9.9 percent below the same period in the prior fiscal year. Sales were up 9.6 percent to $1,324.2 million.

Sales in existing stores increased approximately 0.7 percent in the quarter, which was above the comparable period last year. The comp store performance relfected an increase of approximately 2.9 percent in sales of hardlines and a decrease of approximately 7.2 percent in sales of softlines.

Commenting on 2004 and the company's plans for fiscal 2005, chairman and c.e.o. Howard R. Levine said: "The 6.1 percent increase in net income in fiscal 2004 was achieved in a difficult economic environment for the company's low to low-middle income customer base. While we did not achieve our targeted net income growth, we did continue to reinvest in the business.

"In fiscal 2004, 500 new stores were opened. Good progress was made in the implementation of the multi-year 'Store of the Future' project, including infrastructure investments so that our customers are able to use PIN-based debit cards in our stores. We also completed the strategic assessment, concept testing and development of implementation plans for urban and cooler programs that will be key initiatives in fiscal 2005."

The company named the following four initiatives as part of a strategy to increase sales and earnings in 2005:

-- Coolers -- Beginning in January 2005, coolers for perishable food will be installed in selected stores. By the end of the fiscal year in August 2005, Family Dollar plans to have coolers in approximately 500 stores. The company also plans to begin implementation by fiscal year-end of new point of sale software to facilitate the acceptance of food stamps in stores with coolers, simplify cashier training, and speed up checkout processes.

-- Urban Initiative -- Family Dollar expects that investments being made in process changes, technology, and people will improve the operating performance of more than 1,000 high-volume stores in 30 large metropolitan markets. This initiative is being rolled out in waves, with approximately 250 stores to be impacted in the first quarter. It incorporates a number of "Store of the Future" components, including an automated hiring process and organizational changes to support a more mobile and flexible workforce.

-- "Treasure Hunt" Merchandise -- Family Dollar's basic assortment of merchandise is being supplemented by additional opportunistically purchased goods, a program designed to create more excitement in the stores throughout the year, with particular emphasis on the holiday season. An advertising circular will be distributed in early November 2004 to generate additional sales.

-- New Stores -- The company said it will continue an aggressive store opening program. Current plans are to open 500 to 560 stores and close 60 to 70 stores, resulting in 8 percent to 9 percent net new store growth and 9 percent to 10 percent net square footage growth. Urban markets will continue to be the focus, with 60 percent to 65 percent of the new stores expected to open in urban areas.

In a research note published yesterday, Piper Jaffray analyst Mitchell A. Kaiser noted that Family Dollar's urban strategy involves new challenges, such as managing higher employee turnover, higher shrink, and extended store opening timings. The company has underperformed its store opening plans so far in FY04, according to Piper Jaffray.
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