Family Dollar Conference Call Highlights

Family Dollar Stores, Inc. FDO reported its Q4 earnings. Shares of the company are fairly neutral.

Below are some key highlights and takeaways from its conference call.

Operations and Store Closures:

• Comp store sales declined 2.1% and earnings, on an adjusted basis and excluding the extra week last year, declined about 19%.
• In addition, in the second half of fiscal 2014, we closed 377 underperforming stores.
• Generally, these stores were older, generated sales and profits well below the company's average and continued to deteriorate in the current environment.
• The combination of our workforce reduction efforts and store closures are expected to result in $40 million to $ 45 million of annualized operating benefit.
• We opened 526 new stores and renovated, relocated or expanded 738 stores.
• In fiscal 2014, we continued to make good progress with our direct sourcing programs and increased our mix of direct from factory purchases.
• For the year, private brand consumable sales increased about 11%.
• We increased our private brand consumable penetration from 18.5% in fiscal 2013 to about 20% in fiscal 2014.

Financials:

• Total sales increased 4.5% to $2.6 billion and comparable store sales increased 0.3%.
• In fiscal 2014, we deployed Checkpoint, a new security tagging program, to about 65% of the chain; and we've experienced very encouraging results so far.
• Total consumable sales increased 2.4% over year.
• Gross margin was pressured more than we expected.
• For the quarter, gross profit was $861.3 million or 32.9% of sales.
• The sales mix in the quarter continued to shift toward consumables.
• Expenses were also slightly higher relative to our original forecast, primarily due to higher than anticipated workers' comp insurance cost.
• We have planned an expense reduction based on this trend over the past few quarters.
• Unfortunately, based on the most recent actuarial estimates, the trend changed during the quarter and we did not realize the anticipated benefit.
• Capital expenditures were $436.3 million in fiscal 2014, compared to $744.4 million in fiscal 2013.
• During fiscal 2014, we spent $148.9 million related to new stores, $141.4 million on our store renovation program.
• Reflecting our commitment to returning excess capital to shareholders, in fiscal 2014 we paid $130.1 million in dividend and repurchased $125 million of our common stock.

Guidance:

• We remain committed to growth and plan to open approximately 375 new stores, close approximately 40 stores and renovate, relocate or expand approximately 775 stores next year.
• We are testing a new lower-cost renovation program that is geared towards lower volume stores in an effort to improve return on investment.
• As we discussed last quarter, building on the success of our McLane partnership, we plan to further increase the number of coolers in all new and renovated stores moving forward.
• In addition, we will accelerate our rollout of beer and wine in fiscal 2015.