Family Dollar Reports Record Sales and Earnings Results

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Family Dollar Reports Record Sales and Earnings Results

  • Fourth Quarter Net Sales increased 10.8%; Comparable Store Sales Increased 5.4%
  • Adjusted Fourth Quarter Earnings Increased 13.6% to $0.75 per Diluted Share
  • Reported Fourth Quarter Earnings Increased 4.5% to $0.69 per Diluted Share
  • Fiscal 2012 Net Sales Increased 9.2%; Comparable Store Sales Increased 4.7%
  • Adjusted Fiscal 2012 Earnings Increased 16.7% to $3.64 per Diluted Share
  • Reported Fiscal 2012 Earnings Increased 14.7% to $3.58 per Diluted Share
  • Company Introduces Earnings Guidance for Fiscal 2013 of $4.10 to $4.40

MATTHEWS, N.C.--(BUSINESS WIRE)-- Family Dollar Stores, Inc. (NYSE: FDO) today reported record sales and earnings results for the fourth quarter and year ended August 25, 2012.

Net sales for the fourth quarter of fiscal 2012 increased 10.8% to $2.36 billion, and net income per diluted share in the fourth quarter of fiscal 2012 increased 4.5% to $0.69. Included in the results for the fourth quarter of fiscal 2012 was a litigation charge of $0.06 per diluted share. Excluding this litigation charge, earnings per diluted share in the fourth quarter of fiscal 2012 would have increased 13.6% to $0.75.

Net sales for fiscal 2012 increased 9.2% to $9.33 billion, and net income per diluted share in fiscal 2012 increased 14.7% to $3.58. Excluding the litigation charge, earnings per diluted share would have increased 16.7% to $3.64 in fiscal 2012.

"Fiscal 2012 was a year of great progress for Family Dollar. We expanded our merchandise assortment to increase our relevancy to our customers; we continued to improve the shoppability of our stores; and we repositioned our leadership team to better support our growth," said Howard R. Levine, Chairman and CEO. "As a result of these efforts, we delivered another strong year for our shareholders. In fiscal 2012:

  • We opened 475 new stores, including 41 stores in California;
  • We renovated, relocated or expanded 854 stores;
  • We substantially expanded our assortment in key consumable businesses like food and health and beauty aids;
  • We introduced new categories like tobacco, magazines and gift cards;
  • We expanded coolers in 1,375 stores;
  • We enhanced our communications to customers through improvements in our marketing capabilities;
  • We opened our 10th distribution center and began construction of our 11th distribution center;
  • We delivered another year of double-digit earnings per share growth;
  • We increased the annual dividend paid to shareholders by 16.4%; and
  • We increased return on shareholders' equity and return on invested capital.

"These accomplishments position us well for continued growth in fiscal 2013 and beyond. This year, as we work to drive further benefit from the investments we made in fiscal 2012, we will focus on enhancing the shopping experience in our stores, increasing inventory productivity, improving store-level processes, and driving greater profitability. I remain confident that these efforts, combined with our strategy of providing customers with great value and convenience, will continue to deliver strong shareholder returns in fiscal 2013 and beyond."

Fourth Quarter Results

Total net sales for the fourth quarter of fiscal 2012 increased 10.8% to $2.36 billion compared with total net sales of $2.13 billion in the fourth quarter of fiscal 2011. Comparable store sales increased 5.4%. This increase was a result of increased customer traffic and an increase in the average customer transaction value.

Gross profit in the fourth quarter of fiscal 2012 increased 10.2% to $799.7 million, or 33.8% of net sales, compared with $725.6 million, or 34.0% of net sales, in the fourth quarter of fiscal 2011. As a percentage of sales, the impact of stronger sales of lower-margin consumables and increased inventory shrinkage was largely offset by higher markups, lower markdowns and lower freight expense.

Selling, general and administrative (SG&A) expenses, as a percentage of net sales, were 27.7% in the fourth quarter of fiscal 2012 compared with 27.8% in the fourth quarter of fiscal 2011. As a percentage of net sales, lower store labor expenses and lower expenses related to the Company's renovation program were partially offset by higher insurance expense and higher marketing expense.

During the fourth quarter, the Company incurred a litigation charge of $11.5 million associated with the preliminary settlement of a lawsuit in the state of New York. Settlement terms have not been finalized between the parties, and any finalized settlement will require court approval.

Net income in the fourth quarter of fiscal 2012 was $80.9 million compared with $79.8 million in the fourth quarter of fiscal 2011. Excluding the litigation charge, net income for the fourth quarter of fiscal 2012 would have increased 10.3% to $88.1 million.

Fiscal 2012 Results

Total net sales for fiscal 2012 increased 9.2% to $9.33 billion compared with total net sales of $8.55 billion in fiscal 2011. Comparable store sales increased 4.7%. This increase was a result of increased customer traffic and an increase in the average customer transaction value.

Gross profit in fiscal 2012 increased 7.5% to $3.26 billion, or 34.9% of net sales, compared with $3.03 billion, or 35.5% of net sales, in fiscal 2011. As a percentage of sales, the impact of stronger sales of lower-margin consumables, increased inventory shrinkage, and higher markdowns were partially offset by higher markups resulting from the Company's continued investments in private brands, global sourcing and price-management capabilities.

SG&A expenses, as a percentage of net sales, were 27.4% in fiscal 2012 compared with 28.0% in fiscal 2011. As a percentage of net sales, lower store labor expenses and lower insurance expenses were partially offset by higher marketing expense.

Operating profit in fiscal 2012 was $688.1 million compared with $638.1 million in fiscal 2011. As a percentage of net sales, operating profit was 7.4% in fiscal 2012 as compared to 7.5% in fiscal 2011. Excluding the litigation charge, operating profit would have been $699.6 million, or 7.5% of sales.

The effective income tax rate in fiscal 2012 was 36.4% as compared to 37.1% in fiscal 2011. The decrease in the effective tax rate in fiscal 2012, as compared to fiscal 2011, was due primarily to foreign tax benefits realized in connection with the Company's global sourcing efforts and a decrease in liabilities for uncertain tax positions.

Net income in fiscal 2012 was $422.2 million compared with $388.4 million in fiscal 2011. Excluding the litigation charge, net income in fiscal 2012 would have increased 10.5% to $429.4 million.

The Company's merchandise inventories at August 25, 2012, were $1.43 billion compared with $1.15 billion at August 27, 2011. Average inventory per store at the end of fiscal 2012 was approximately 16.6% higher than the average inventory per store at the end of fiscal 2011. The increase in inventories was the result of investments to expand the Company's consumable categories, primarily health and beauty aids and food assortments.

Capital expenditures were $603.3 million in fiscal 2012 compared with $345.3 million in fiscal 2011. The increase in capital expenditures was primarily a result of increased new store openings; investments related to store renovations, relocations and expansions; investments in fixtures to support the Company's expanded assortment of consumables; and expenditures related to completion of the Company's 10th distribution center. In fiscal 2012, the Company completed two sale-leaseback transactions for 276 stores with net proceeds, after transaction costs, of $359.7 million.

During fiscal 2012, the Company paid $91.4 million in dividends and repurchased approximately 3.2 million shares of its common stock for a total cost of $191.6 million. As of August 25, 2012, the Company had the authorization to purchase up to an additional $145.7 million of its common stock.

Outlook

Commenting on expectations for fiscal 2013, Levine said, "Our financial goals over the next three to five years are to consistently deliver: five to seven percent net new store growth; mid-single-digit comp sales growth; operating margin expansion, and double-digit earnings per share growth. Our plans for fiscal 2013 align nicely with these long-term goals."

For the 53-week year ending August 31, 2013, the Company expects that earnings per diluted share will be between $4.10 and $4.40, compared with $3.58 in fiscal 2012. Consistent with the National Retail Federation Calendar, fiscal 2013 will include an extra week, which will be recorded in the second quarter of the year. The extra week is expected to add approximately $0.10 of earnings per diluted share to the year, which is included in the Company's earnings guidance.

The Company's outlook for fiscal 2013 is based on the following assumptions which may or may not prove valid:

  • An increase in comparable store sales of between 4% and 6%;
  • Approximately 500 new store openings and 70-90 store closings;
  • Gross margin pressure driven primarily by an expanding mix of lower-margin consumables;
  • SG&A leverage driven by a strong increase in comparable store sales;
  • An effective income tax rate between 36% and 37%;
  • Weighted average diluted shares of approximately 117 million; and
  • Capital expenditures of between $600 million and $650 million to support new store openings, store renovations, merchandising initiatives, and expansion of the Company's supply chain.

For the first quarter of fiscal 2013, the Company expects that comparable store sales will increase between 4% and 6% and that earnings per diluted share will be between $0.69 and $0.78 per share compared with $0.68 per share in the first quarter of fiscal 2012.

Cautionary Statements

Certain statements contained in this press release are "forward-looking statements" that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address certain plans, activities or events which the Company expects will or may occur in the future and relate to, among other things, the state of the economy, the Company's investment and financing plans, net sales, comparable store sales, cost of sales, SG&A expenses, earnings per diluted share, dividends and share repurchases. Various risks, uncertainties and other factors could cause actual results to differ materially from those expressed in any forward-looking statement. Consequently, all of the forward-looking statements made by the Company in this and in other documents or statements are qualified by factors, risks and uncertainties, including, but not limited to, those set forth under the headings titled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in the Company's most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission up to the date of this release.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company does not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

Earnings Conference Call Information

The Company plans to host a conference call with investors today at 10:00 a.m. ET to discuss the results. The Company will also provide an update on various business initiatives and discuss plans and expectations for fiscal 2013. After some prepared remarks by management, participants will have an opportunity to ask questions. The Company's responses to questions, as well as other matters discussed during the conference call, may include information that has not been disclosed previously.

If you wish to participate, please call (800) 779-6561 for domestic US calls and (517) 308-9046 for international calls at least 10 minutes before the call is scheduled to begin. The passcode for the conference call is FAMILY DOLLAR.

A live webcast of the conference call with accompanying slides can be accessed at the following link:

http://www.familydollar.com/investors.aspx?p=irhome.

A replay of the webcast will be available at the address noted above after 2:00 p.m. ET, October 3, 2012.

About Family Dollar

For more than 50 years, Family Dollar has been providing value and convenience to customers in easy-to-shop neighborhood locations. Family Dollar's mix of name brands and quality, private brand merchandise, appeals to shoppers in more than 7,400 stores in rural and urban settings across 45 states. Helping families save on the items they need with everyday low prices creates a strong bond with customers who refer to their neighborhood store as "my Family Dollar." Headquartered in Matthews, North Carolina, just outside of Charlotte, Family Dollar is a Fortune 300, publicly held company with common stock traded on the New York Stock Exchange under the symbol FDO. For more information, please visit www.familydollar.com.

 
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
   For the Fourth Quarter Ended
(in thousands, except per share amounts)

August 25,
2012

 

% of Net
Sales

  

August 27,
2011

 

% of Net
Sales

  
Net sales$2,364,125100.00%$2,134,330100.00%
 
Cost of sales 1,564,422 66.17% 1,408,723 66.00%
 
Gross profit799,70333.83%725,60734.00%
 
Selling, general and administrative expenses655,54627.73%593,83527.82%
 
Litigation charge 11,500 0.49% 

 0.00%
 
Operating profit132,6575.61%131,7726.17%
 
Investment income2110.01%2680.01%
 
Interest expense 6,318 0.27% 7,202 0.34%
 
Income before income taxes126,5505.35%124,8385.85%
 
Income taxes 45,619 1.93% 44,989 2.11%
 
Net income$80,9313.42%$79,8493.74%
 
Net income per common share - basic$0.70$0.67
Weighted average shares - basic116,396119,292
 
Net income per common share - diluted$0.69$0.66
Weighted average shares - diluted117,267120,444
 
Dividends declared per common share*$0.180
 
*On September 4, 2012, Family Dollar's Board of Directors declared a regular quarterly cash dividend on the Company's common stock of $0.21 per share, payable Monday, October 15, 2012, to shareholders of record at the close of business on Friday, September 14, 2012.
 

 
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
   

For the Year Ended

(in thousands, except per share amounts)

August 25,
2012

 

% of Net
Sales

  

August 27,
2011

 

% of Net
Sales

  
Net sales$9,331,005100.00%$8,547,835100.00%
 
Cost of sales 6,071,058 65.06% 5,515,540 64.53%
 
Gross profit3,259,94734.94%3,032,29535.47%
 
Selling, general and administrative expenses2,560,34627.44%2,394,22328.01%
 
Litigation charge 11,500 0.12%  0.00%
 
Operating profit688,1017.37%638,0727.46%
 
Investment income9270.01%1,5320.02%
 
Interest expense 25,090 0.27% 22,446 0.26%
 
Income before income taxes663,9387.12%617,1587.22%
 
Income taxes 241,698 2.59% 228,713 2.68%
 
Net income$422,2404.53%$388,4454.54%
 
Net income per common share - basic$3.61$3.15
Weighted average shares - basic117,097123,360
 
Net income per common share - diluted$3.58$3.12
Weighted average shares - diluted118,058124,486
 
Dividends declared per common share*$0.600$0.695
 
*On September 4, 2012, Family Dollar's Board of Directors declared a regular quarterly cash dividend on the Company's common stock of $0.21 per share, payable Monday, October 15, 2012, to shareholders of record at the close of business on Friday, September 14, 2012.
 

 
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Unaudited)

  
    As of
(in thousands, except per share and share amounts)

August 25, 2012

   August 27, 2011

Assets

Current assets:
Cash and cash equivalents$92,333$141,405
Short-term investment securities6,27196,006
Restricted cash and investments126,281
Merchandise inventories1,426,1631,154,660
Deferred income taxes69,51860,011
Income tax refund receivable10,326
Prepayments and other current assets 47,604  71,436 
Total current assets1,768,1701,533,844
 
Property and equipment, net1,496,3601,280,589
Investment securities23,720107,458
Other assets 84,815  74,314 
 
Total assets$3,373,065 $2,996,205 
 

Liabilities and Shareholders' Equity

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