Family Dollar Stores, Inc. FDO today reported that for the second quarter of fiscal 2014 ended March 1, 2014, net sales were $2.7 billion as compared to $2.9 billion in the second quarter of fiscal 2013 ended March 2, 2013. Earnings per diluted share in the second quarter of fiscal 2014 were $0.80 as compared to $1.21 in the second quarter of fiscal 2013. Consistent with the National Retail Federation Calendar, the second quarter of fiscal 2014 included 13 weeks as compared to 14 weeks in the second quarter of fiscal 2013. The Company estimates that this extra week contributed approximately $189 million in sales and $0.07 of earnings per diluted share in the second quarter of fiscal 2013. The Company estimates that the negative financial impact in the second quarter of fiscal 2014 from the adverse winter weather was at least $0.05 of earnings per diluted share.
“Our second quarter results did not meet our expectations,” said Howard R. Levine, Chairman and CEO. “The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer. In addition, like many retailers, our second quarter results were significantly impacted by severe winter weather, which resulted in numerous store closings, disrupted merchandise deliveries and higher than expected utility and store maintenance expenses.”
“Notwithstanding the macro-economic pressure, competitive environment and severe weather, we are not satisfied with our results, and we hold ourselves accountable for improving our performance,” said Levine. “To that end, we have initiated an in-depth business review to identify opportunities to strengthen our value proposition, increase operational efficiencies and improve financial performance.”
“While this business review is ongoing, we are taking immediate, strategic actions to improve our performance. First, we have made a significant investment to lower prices on about 1,000 basic items. Second, we are reducing our cost structure through the optimization of our workforce. Third, we will close approximately 370 underperforming stores. Once complete, our workforce reduction efforts and store closures are expected to result in $40 million to $45 million of annualized operating profit benefit, beginning in the third quarter of fiscal 2014. Lastly, we intend to slow new store growth beginning in fiscal 2015 to improve our return on investment. We are confident that these steps will position Family Dollar to deliver stronger returns for our shareholders,” concluded Levine.
Fiscal 2014 Second Quarter and First Half Results
Net sales for the second quarter ended March 1, 2014, decreased 6.1% to $2.7 billion from $2.9 billion in the second quarter of fiscal 2013 ended March 2, 2013. Consistent with the National Retail Federation Calendar, the second quarter of fiscal 2014 included 13 weeks as compared to 14 weeks in the second quarter of fiscal 2013. The Company estimates that this extra week contributed approximately $189 million in sales in fiscal 2013. Excluding the impact of the extra week, the Company estimates that sales in the second quarter of fiscal 2014 would have increased 0.4% compared to the second quarter of fiscal 2013. Sales in the second quarter of fiscal 2014 were strongest in the Consumables category, driven primarily by strong growth in refrigerated and frozen food and tobacco. Comparable store sales for the 13-week period ended March 1, 2014, decreased 3.8% as a result of decreased customer transactions, partially offset by an increase in the average customer transaction value.
Gross profit for the second quarter of fiscal 2014 decreased 6.7% to $902.3 million, or 33.2% of net sales, compared to $967.1 million, or 33.4% of net sales, in the second quarter of fiscal 2013. As a percentage of sales, the impact of stronger sales of lower-margin consumables and higher markdowns was partially offset by higher markups, lower freight expense and lower inventory shrinkage.
Selling, general and administrative expenses, as a percentage of net sales, were 28.1% in the second quarter of fiscal 2014 compared to 25.9% in the second quarter of fiscal 2013. The expense de-leverage in the second quarter of fiscal 2014 was primarily driven by the decrease in comparable store sales. As a percentage of net sales, higher store occupancy and store payroll expenses were partially offset by lower advertising and incentive compensation expenses.
The effective income tax rate was 35.3% for the second quarter of fiscal 2014 compared with 35.6% for the second quarter of fiscal 2013.
Net income for the second quarter of fiscal 2014 was $90.9 million compared to net income of $140.1 million for the second quarter of fiscal 2013. Excluding the impact of the extra week, the Company estimates that net income in the second quarter of fiscal 2013 would have been $132.0 million.
The Company's merchandise inventories at March 1, 2014, were $1.7 billion compared with $1.5 billion at March 2, 2013. Average inventory per store at the end of the second quarter of fiscal 2014 was 2.1% higher than the average inventory per store at the end of the second quarter of fiscal 2013.
In the first half of fiscal 2014, capital expenditures were $219.7 million compared with $409.7 million in the first half of fiscal 2013. In the first half of fiscal 2014, the Company spent $76.4 million related to new stores; $54.4 million on its store renovation program; $38.4 million on existing stores; $38.1 million related to corporate and technology investments; and $12.4 million on supply chain investments.
During the first half of fiscal 2014, the Company opened 244 new stores, closed 22 stores and renovated, relocated or expanded 319 stores.
In the first half of fiscal 2014, the Company repurchased approximately 1.8 million shares of its common stock for a total cost of $125.0 million and paid $59.5 million in dividends to shareholders. As of March 1, 2014, the Company had authorization to purchase up to an additional $245.8 million of its common stock.
Immediate Strategic Actions
As part of the Company's review to identify opportunities to strengthen our value proposition, increase operational efficiencies and improve financial performance, the Company is executing a series of immediate strategic actions.
These actions include:
- Investing significantly to lower prices on nearly 1,000 basic items to deliver even more compelling values to customers.
- Reducing corporate overhead and re-aligning key organizational functions to improve execution and reinforce the Company's commitment to being an efficient, low-cost retailer.
- Closing approximately 370 underperforming stores in the second half of fiscal 2014.
- Slowing new store growth beginning in fiscal 2015. The Company now plans to open 350-400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014. The reduction is designed to improve return on investment by capitalizing on insights regarding location, competitive dynamic and cost structure.
The Company expects to record an estimated $85 million to $95 million restructuring charge in the second half of fiscal 2014 related to the workforce reductions and store closures. This charge was not included in the earnings outlook previously provided by the Company.
The Company estimates that the impact from the workforce reductions and store closures will deliver $40 million to $45 million of annualized operating profit benefit, beginning in the third quarter of fiscal 2014. These savings are included in the Company's fiscal 2014 earnings outlook.
“Our mission is to deliver compelling, everyday values for our customers, and executing on this promise requires an unwavering commitment to being a low-cost operator. We are taking a number of important steps through our immediate strategic actions to improve our operational efficiency and deliver better financial returns,” said Howard R. Levine, Chairman and CEO. “Family Dollar has ample opportunities for growth. As the environment remains challenging, we are adjusting our growth plans to ensure that we are allocating resources to initiatives with the highest potential for value creation. We are confident that these steps will position the Company better, enable us to improve our execution, and deliver higher shareholder returns.”
Outlook
For the third quarter of fiscal 2014, the Company expects that comparable store sales will decline in the low-single-digit range and that earnings per diluted share will be between $0.85 and $0.95 per share, excluding approximately $0.13 per share related to restructuring charges. Including the restructuring charges, the Company expects earnings per diluted share will be between $0.72 and $0.82.
For the fourth quarter of fiscal 2014, the Company expects that comparable store sales will be flat to up slightly and that earnings per diluted share will be between $0.75 and $0.85, excluding approximately $0.37 related to restructuring charges. Including the restructuring charges, the Company expects earnings per diluted share will be between $0.38 and $0.48.
For the 52-week year ending August 30, 2014, the Company expects that earnings per diluted share will be between $3.05 and $3.25, excluding approximately $0.50 per share related to restructuring charges. Including the restructuring charges, the Company expects earnings per diluted share will be between $2.55 and $2.75.
The Company's outlook for fiscal 2014 is based on the following assumptions which may or may not prove valid:
- A low-single digit increase in net sales, excluding the impact of the extra week in fiscal 2013;
- A low-single digit decline in comparable store sales;
- Approximately 525 new store openings and approximately 400 store closings;
- A decline in gross profit, as a percentage of sales;
- SG&A expense de-leverage based on our comparable store sales outlook;
- An effective income tax rate between 36.0% and 36.5%; and
- Capital expenditures of between $450 million and $500 million.
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, store openings and closings, gross profit, income tax rates, capital expenditures, 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.
In addition, the amounts and timing of all estimates are subject to change. The actual amounts and timing may vary materially based on various factors, including the timing of store closings; the timing and amount of sublease income and other lease expense; factors relating to real estate including sale proceeds; asset write-downs and other factors affecting inventory value; changes in management's assumptions; and other factors.
Earnings Conference Call Information
The Company plans to host a conference call with investors today, April 10, 2014, at 10:00 a.m. ET to discuss the results. The Company will also discuss business initiatives, plans and expectations for fiscal 2014. 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) 890-0881 for domestic US calls and (719) 325-2295 for international calls at least 10 minutes before the call is scheduled to begin. The passcode for the conference call is 3827795 or “FAMILY DOLLAR.”
A live webcast of the conference call with accompanying slides can be accessed at the following link.
http://investor.familydollar.com/investors-relations/default.aspx
A replay of the webcast will be available at the address noted above after 11:00 a.m. ET, April 10, 2014.
About Family Dollar
For more than 54 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 8,100 stores in rural and urban settings across 46 states. Helping families save on the items they need with everyday low prices creates a strong bond with customers, who often 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 Second Quarter Ended | |||||||||||||||||
| (in thousands, except per share amounts) |
March 1, 2014 |
% of Net |
March 2, 2013 |
% of Net |
|||||||||||||
| Net sales | $ | 2,716,621 | 100.00 | % | $ | 2,893,997 | 100.00 | % | |||||||||
| Cost of sales | 1,814,327 | 66.79 | % | 1,926,947 | 66.58 | % | |||||||||||
| Gross profit | 902,294 | 33.21 | % | 967,050 | 33.42 | % | |||||||||||
| Selling, general and administrative expenses | 762,037 | 28.05 | % | 750,073 | 25.92 | % | |||||||||||
| Operating profit | 140,257 | 5.16 | % | 216,977 | 7.50 | % | |||||||||||
| Investment income | 46 | 0.00 | % | 109 | 0.00 | % | |||||||||||
|
|
|||||||||||||||||
| Interest expense | 7,374 | 0.27 | % | 6,775 | 0.23 | % | |||||||||||
| Other income | 7,528 | 0.28 | % | 7,426 | 0.26 | % | |||||||||||
| Income before income taxes | 140,457 | 5.17 | % | 217,737 | 7.52 | % | |||||||||||
| Income taxes | 49,588 | 1.83 | % | 77,592 | 2.68 | % | |||||||||||
| Net income | $ | 90,869 | 3.34 | % | $ | 140,145 | 4.84 | % | |||||||||
| Net income per common share - basic | $ | 0.80 | $ | 1.21 | |||||||||||||
| Weighted average shares - basic | 113,788 | 115,455 | |||||||||||||||
| Net income per common share - diluted | $ | 0.80 | $ | 1.21 | |||||||||||||
| Weighted average shares - diluted | 114,141 | 115,920 | |||||||||||||||
| Dividends declared per common share | $ | 0.26 | $ | 0.21 | |||||||||||||
| FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| For the First Half Ended | |||||||||||||||||
| (in thousands, except per share amounts) |
March 1, 2014 |
% of Net |
March 2, 2013 |
% of Net |
|||||||||||||
| Net sales | $ | 5,216,312 | 100.00 | % | $ | 5,315,685 | 100.00 | % | |||||||||
| Cost of sales | 3,457,177 | 66.28 | % | 3,521,841 | 66.25 | % | |||||||||||
| Gross profit | 1,759,135 | 33.72 | % | 1,793,844 | 33.75 | % | |||||||||||
| Selling, general and administrative expenses | 1,498,559 | 28.73 | % | 1,449,898 | 27.28 | % | |||||||||||
| Operating profit | 260,576 | 5.00 | % | 343,946 | 6.47 | % | |||||||||||
| Investment income | 104 | 0.00 | % | 184 | 0.00 | % | |||||||||||
| Interest expense | 14,297 | 0.27 | % | 13,897 | 0.26 | % | |||||||||||
| Other income | 14,934 | 0.29 | % | 13,788 | 0.26 | % | |||||||||||
| Income before income taxes | 261,317 | 5.01 | % | 344,021 | 6.47 | % | |||||||||||
| Income taxes | 92,421 | 1.77 | % | 123,597 | 2.33 | % | |||||||||||
| Net income | $ | 168,896 | 3.24 | % | $ | 220,424 | 4.15 | % | |||||||||
| Net income per common share - basic | $ | 1.48 | $ | 1.91 | |||||||||||||
| Weighted average shares - basic | 114,186 | 115,486 | |||||||||||||||
| Net income per common share - diluted | $ | 1.47 | $ | 1.90 | |||||||||||||
| Weighted average shares - diluted | 114,613 | 116,057 | |||||||||||||||
| Dividends declared per common share | $ | 0.52 | $ | 0.42 | |||||||||||||
| FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| (Unaudited) | |||||||||||
| As of | |||||||||||
| (in thousands, except per share and share amounts) | March 1, 2014 | March 2, 2013 | |||||||||
|
Assets |
|||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 157,199 | $ | 117,816 | |||||||
| Short-term investment securities | 15,007 | 12,783 | |||||||||
| Restricted cash and investments | 34,031 | 71,517 | |||||||||
| Merchandise inventories | 1,660,798 | 1,533,954 | |||||||||
| Deferred income taxes | 32,736 | 71,970 | |||||||||
| Income tax refund receivable | 34,769 | 12,872 | |||||||||
| Prepayments and other current assets | 197,226 | 129,767 | |||||||||
| Total current assets | 2,131,766 | 1,950,679 | |||||||||
| Property and equipment, net | 1,778,153 | 1,705,161 | |||||||||
| Investment securities | 16,557 | 23,444 | |||||||||
| Other assets | 76,328 | 92,698 | |||||||||
| Total assets | $ | 4,002,804 | $ | 3,771,982 | |||||||
|
Liabilities and Shareholders' Equity |
|||||||||||
| Current liabilities: | |||||||||||
| Short-term borrowings | $ | 296,000 | $ | 182,223 | |||||||
| Current portion of long-term debt | 16,200 | 16,200 | |||||||||
| Accounts payable | 745,747 | 736,238 | |||||||||
| Accrued liabilities | 319,053 | 338,838 | |||||||||
| Income taxes | 4,943 | 8,428 | |||||||||
| Total current liabilities | 1,381,943 | 1,281,927 | |||||||||
| Long-term debt | 484,150 | 500,199 | |||||||||
| Other liabilities | 290,279 | 281,341 | |||||||||
| Deferred gain | 210,835 | 218,245 | |||||||||
| Deferred income taxes | 28,172 | 65,598 | |||||||||
| Commitments and contingencies | — | — | |||||||||
| Shareholders' Equity: | |||||||||||
|
Preferred stock, $1 par; authorized and unissued 500,000 shares |
— | — | |||||||||
|
Common stock, $.10 par; authorized 600,000,000 shares |
12,060 | 11,995 | |||||||||
| Capital in excess of par | 322,424 | 288,225 | |||||||||
| Retained earnings | 1,679,010 | 1,406,262 | |||||||||
| Accumulated other comprehensive loss | (1,611 | ) | (1,561 | ) | |||||||
| Common stock held in treasury, at cost | (404,458 | ) | (280,249 | ) | |||||||
| Total shareholders' equity | 1,607,425 | 1,424,672 | |||||||||
| Total liabilities and shareholders' equity | $ | 4,002,804 | $ | 3,771,982 | |||||||
| FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (Unaudited) | |||||||||||
| For the First Half Ended | |||||||||||
| (in thousands) |
March 1, 2014 |
March 2, 2013 |
|||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 168,896 | $ | 220,424 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 126,835 | 115,973 | |||||||||
| Amortization of deferred gain | (8,422 | ) | (6,971 | ) | |||||||
| Deferred income taxes | 12,219 | 7,465 | |||||||||
| Excess tax benefits from stock-based compensation | (5,434 | ) | (12,891 | ) | |||||||
| Stock-based compensation | 10,151 | 9,436 | |||||||||
|
Loss on disposition of property and equipment, including impairment |
7,015 | 3,695 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Merchandise inventories | (193,782 | ) | (107,791 | ) | |||||||
| Prepayments and other current assets | (35,679 | ) | (82,158 | ) | |||||||
| Other assets | 1,644 | (1,125 | ) | ||||||||
| Accounts payable and accrued liabilities | 48,706 | 12,421 | |||||||||
| Income taxes | (21,310 | ) | (36,303 | ) | |||||||
| Other liabilities | 1,085 | 13,197 | |||||||||
| Net cash provided by (used in) operating activities | 111,924 | 135,372 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of investment securities | (45,490 | ) | (20,439 | ) | |||||||
| Sales of investment securities | 62,238 | 14,000 | |||||||||
| Net change in restricted cash | 139 | 48,405 | |||||||||
| Net proceeds from sale-leaseback | 19,222 | 163,520 | |||||||||
| Capital expenditures | (219,691 | ) | (409,735 | ) | |||||||
| Proceeds from dispositions of property and equipment | 344 | 908 | |||||||||
| Net cash provided by (used in) investing activities | (183,238 | ) | (203,341 | ) | |||||||
| Cash flows from financing activities: | |||||||||||
| Short-term borrowings | 1,318,000 | 1,150,223 | |||||||||
| Repayment of short-term borrowings | (1,022,000 | ) | (983,000 | ) | |||||||
| Repayment of long-term debt | (16,200 | ) | (16,200 | ) | |||||||
| Repurchases of common stock | (125,038 | ) | (74,954 | ) | |||||||
| Change in cash overdrafts | (26,328 | ) | 36,726 | ||||||||
| Proceeds from exercise of employee stock options | 13,157 | 16,312 | |||||||||
| Excess tax benefits from stock-based compensation | 5,434 | 12,891 | |||||||||
| Payment of dividends | (59,511 | ) | (48,546 | ) | |||||||
| Net cash provided by (used in) financing activities | 87,514 | 93,452 | |||||||||
| Net change in cash and cash equivalents | 16,200 | 25,483 | |||||||||
| Cash and cash equivalents at beginning of period | 140,999 | 92,333 | |||||||||
| Cash and cash equivalents at end of period | $ | 157,199 | $ | 117,816 | |||||||
| FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES | |||||||||||||||
| Selected Additional Information | |||||||||||||||
| NET SALES BY CATEGORY: | |||||||||||||||
| For the Second Quarter Ended | |||||||||||||||
| (in thousands) |
March 1, 2014 |
March 2, 2013 |
% Change | ||||||||||||
| Consumables | $ | 1,932,446 | $ | 2,011,502 | -3.9 | % | |||||||||
| Home products | 281,779 | 322,229 | -12.6 | % | |||||||||||
| Apparel and accessories | 183,608 | 206,889 | -11.3 | % | |||||||||||
| Seasonal and electronics | 318,788 | 353,377 | -9.8 | % | |||||||||||
| TOTAL | $ | 2,716,621 | $ | 2,893,997 | -6.1 | % | |||||||||
| For the First Half Ended | |||||||||||||||
| (in thousands) |
March 1, 2014 |
March 2, 2013 |
% Change | ||||||||||||
| Consumables | $ | 3,805,542 | $ | 3,800,787 | 0.1 | % | |||||||||
| Home products | 522,275 | 564,564 | -7.5 | % | |||||||||||
| Apparel and accessories | 355,132 | 384,915 | -7.7 | % | |||||||||||
| Seasonal and electronics | 533,363 | 565,419 | -5.7 | % | |||||||||||
| TOTAL | $ | 5,216,312 | $ | 5,315,685 | -1.9 | % | |||||||||
| STORES IN OPERATION: | |||||||||||||||
| For the First Half Ended | |||||||||||||||
|
March 1, 2014 |
March 2, 2013 |
||||||||||||||
| Beginning Store Count | 7,916 | 7,442 | |||||||||||||
| New Store Openings | 244 | 251 | |||||||||||||
| Store Closings | (22 | ) | (18 | ) | |||||||||||
| Ending Store Count | 8,138 | 7,675 | |||||||||||||
| Total Square Footage (000s) | 69,928 | 65,859 | |||||||||||||
| Total Selling Square Footage (000s) | 58,533 | 55,022 | |||||||||||||
| INCREASE | 6.4 | % | 7.5 | % | |||||||||||
Family Dollar Stores, Inc.
INVESTOR CONTACT:
Kiley F. Rawlins,
704-708-2858
CFA
krawlins@familydollar.com
or
MEDIA
CONTACT:
Bryn R. Winburn, 704-708-1653
bwinburn@familydollar.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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