Family Dollar Profits Rise From ‘Trade-Down’ Customers

Family Dollar reported double-digit profit growth as more upscale customers frequent the stores.

Family Dollar Stores Inc. reported double-digit profit growth as higher-income consumers helped it boost both net and comparable-store sales in the fourth quarter.

This story first appeared in the October 12, 2009 issue of WWD.  Subscribe Today.

Howard Levine, chairman and chief executive officer, said the recession had brought a more affluent consumer to the discount operator’s stores.

“We’re referring to them as trade down customers, more middle-income customers,” Levine said. “We’ve worked very hard on improving our merchandise quality in our offerings in both apparel and other merchandise within our stores….So we started working on a number of those things several years ago and think that we’re in good shape to continue to hopefully hold on to those customers, while our core customer is struggling somewhat.”

In the quarter ended Aug. 30, the Matthews, N.C.-based discount retailer’s profits grew 13.1 percent to $60.1 million, or 43 cents a share. A year ago, the firm recorded a fourth-quarter net of $53.2 million, or 38 cents a share. Sales in the three months climbed 2.6 percent to $1.81 billion from $1.77 billion and were up 1 percent on a same-store basis. Gross margin expanded to 34.5 percent of sales from 32.9 percent in the year-ago quarter.

Analysts polled by Yahoo Finance had expected earnings per share of 41 cents on revenues of $1.81 billion, on average.

On the year, Family Dollar’s net improved 25 percent to $291.3 million, or $2.07 a share, from $233.1 million, or $1.66 a share, in the year prior. Sales in fiscal 2009 grew 6 percent to $7.4 billion from $6.98 billion in 2008.

The firm said it expects EPS of $2.15 to $2.35 a diluted share in the new fiscal year with same-store sales expected to increase 3 to 5 percent.

Also last week, club retail giant Costco Wholesale Corp. beat Wall Street expectations despite a 6 percent pullback in fourth-quarter profits.

Issaquah, Wash.-based Costco posted a 6 percent slide in net income to $374 million, or 85 cents a diluted share, in the quarter ended Aug. 30. A year ago, its fourth-quarter profits totaled $398 million, or 90 cents a share. The results included an inventory credit of 2 cents per share. Sales in the period declined 3.1 percent to $22.38 billion from $23.1 billion in 2008.

Analysts on average anticipated EPS of 77 cents a share on revenues of $22.34 billion.

Richard Galanti, executive vice president and chief financial officer, indicated Costco’s sales declines in certain categories might have turned a corner in the month after the quarter closed.

“In fact, hardlines’ and softlines’ positive September comps represented the first time since over a year ago that these departments had comp-sales figures without a negative sign in front of them,” Galanti said on a conference call with analysts.

For the whole of its fiscal 2009, Costco’s profits fell 15.3 percent to $1.09 billion, or $2.47 a share, versus $1.28 billion, or $2.89 a share, in the previous year. Sales in the 12 months fell 1.5 percent to $71.42 billion from $72.48 billion.