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Press release from Business Wire

Family Dollar Reports Record Second Quarter Earnings

<ul> <li class='bwlistitemmargb'> <i><b>Earnings Per Diluted Share Increase 21.0% To $0.98</b></i> </li> <li class='bwlistitemmargb'> <i><b>Net Income Increases 9.8%</b></i> </li> <li class='bwlistitemmargb'> <i><b>Management Updates Earnings Guidance For FY11</b></i> </li> </ul>

Wednesday, March 30, 2011

Family Dollar Reports Record Second Quarter Earnings07:00 EDT Wednesday, March 30, 2011 MATTHEWS, N.C. (Business Wire) -- Family Dollar Stores, Inc. (NYSE: FDO) today reported that net income for the second quarter of fiscal 2011 ended February 26, 2011, increased 9.8% to $123.2 million compared with net income of $112.2 million for the second quarter of fiscal 2010. Net income per diluted share for the quarter increased 21.0% to $0.98 compared with $0.81 for the second quarter of fiscal 2010 ended February 27, 2010. “Over the last several years, we have accelerated capability-building investments and increased our efforts to improve the in-store shopping experience. These investments have provided a solid foundation for the successful launch of our strategic plan to re-accelerate revenue growth, expand operating margins and optimize our capital structure,” said Howard Levine, Chairman and CEO. “Our performance year-to-date illustrates that we are effectively leveraging these enhanced capabilities and executing well against our business plan and delivering superior value for shareholders.” Second Quarter Results As previously reported, sales for the second quarter of fiscal 2011 were approximately $2.263 billion, or 8.3% above sales of approximately $2.090 billion for the second quarter of fiscal 2010. Comparable store sales increased 5.1%. The increase in comparable store sales was a result of increased customer traffic, as measured by the number of register transactions, and a modest increase in the value of the average customer transaction. Although January sales were impacted by winter storms, February sales benefited from early spring-like weather. Sales during the quarter were strongest in the Consumable and Seasonal categories. The gross profit margin, as a percentage of net sales, was 35.7% in the second quarter of fiscal 2011 compared to 35.4% in the second quarter of fiscal 2010. The improvement in gross profit, as a percentage of sales, was a result of lower inventory shrinkage which more than offset higher freight expense. The impact of stronger sales of lower-margin consumables was offset by higher purchase markups. Selling, general and administrative (“SG&A”) expenses increased 8.5% to $607.0 million in the second quarter of fiscal 2011 compared to $559.5 million in the second quarter of fiscal 2010. As a percentage of net sales, SG&A expenses were approximately flat in the second quarter of fiscal 2011 as compared the second quarter of fiscal 2010. Most expenses, including occupancy costs, were leveraged during the quarter as a result of a comparable store sales increase of 5.1%. These improvements were offset by investments to support revenue growth, including expanded store operating hours, store renovations and the acceleration of new store growth. Insurance expense in the quarter also increased as a percentage of sales. The Company's inventories at February 26, 2011, were $1,060.2 million, or 13.4% more than inventories of $935.3 million at February 27, 2010. Average inventory per store at the end of the second quarter of fiscal 2011 was approximately 10% higher than the average inventory per store at the end of the second quarter of fiscal 2010. The increase in inventories was primarily a result of investments to support higher in-stock levels in stores and expansions of consumable assortments. In the first half of fiscal 2011, capital expenditures were $139.0 million compared with $82.9 million in the first half of fiscal 2010. During the first half of fiscal 2011, the Company opened 146 new stores and closed 43 stores compared to 86 new stores and 52 closings in the first half of fiscal 2010. In the first half of fiscal 2011, the Company completed 313 store renovations, including 140 renovations during the second quarter. As part of its previously announced $750 million share repurchase authorization, the Company repurchased 8.9 million shares at a total cost of approximately $408.0 million during the first half of fiscal 2011. As of February 26, 2011, the Company had authorization to purchase up to an additional $349.8 million of its common stock. Outlook For the third quarter, the Company expects that comparable sales for the quarter will increase between 5% and 7% and that earnings per share will be between $0.92 and $0.97 compared with $0.77 in the third quarter of fiscal 2010. For the full year, the Company expects that earnings per share will be between $3.13 and $3.23 compared with $2.62 in fiscal 2010. The Company's outlook for fiscal 2011 is based on the following assumptions which may or may not prove valid: An increase in net sales of between 8% and 10%; An increase in comparable store sales of between 5% and 7%; Approximately 300 new store openings and 80-100 store closings; A modest increase in operating profit, as a percentage of sales; Net interest expense of approximately $20 million; An effective income tax rate of between 37% and 37.5%; Weighted average diluted shares of approximately 124 million, reflecting additional share repurchases in fiscal 2011; and Capital expenditures of between $300 million and $350 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 stores 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. Second Quarter Earnings Conference Call Information The Company intends to host a conference call with investors today at 10:00 A.M. ET to discuss the results. 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. There will also be a live webcast of the conference call with accompanying slides that 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 same address noted above after 2:00 P.M. ET, today. About Family Dollar Beginning with one store in 1959 in Charlotte, North Carolina, the Company currently operates more than 6,800 stores in 44 states. Family Dollar Stores, Inc., a Fortune 500 company, is based in Matthews, North Carolina, just outside of Charlotte and is a 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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited)       For the Second Quarter Ended (in thousands, except per share amounts) February 26,2011     % of NetSales     February 27,2010     % of NetSales         Net sales $ 2,263,169 100.00 % $ 2,090,230 100.00 %   Cost of sales   1,455,802     64.33 %   1,349,399     64.56 %   Gross margin 807,367 35.67 % 740,831 35.44 %   Selling, general and administrative expenses   607,002     26.82 %   559,480     26.77 %   Operating profit 200,365 8.85 % 181,351 8.68 %   Interest income 422 0.02 % 269 0.01 %   Interest expense   4,582     0.20 %   3,368     0.16 %   Income before income taxes 196,205 8.67 % 178,252 8.53 %   Income taxes   73,025     3.23 %   66,043     3.16 %   Net income $ 123,180 5.44 % $ 112,209 5.37 %   Net income per common share - basic $ 0.99 $ 0.82 Weighted average shares - basic 124,619 137,480   Net income per common share - diluted $ 0.98 $ 0.81 Weighted average shares - diluted 125,701 138,142   Dividends declared per common share $ 0.180 $ 0.155   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited)       For the First Half Ended (in thousands, except per share amounts) February 26,2011     % of NetSales     February 27,2010     % of NetSales         Net sales $ 4,260,110 100.00 % $ 3,913,136 100.00 %   Cost of sales   2,733,178     64.16 %   2,514,083     64.25 %   Gross margin 1,526,932 35.84 % 1,399,053 35.75 %   Selling, general and administrative expenses   1,204,985     28.29 %   1,108,031     28.32 %   Operating profit 321,947 7.56 % 291,022 7.44 %   Interest income 809 0.02 % 664 0.02 %   Interest expense   8,100     0.19 %   6,703     0.17 %   Income before income taxes 314,656 7.39 % 284,983 7.28 %   Income taxes   117,161     2.75 %   105,153     2.69 %   Net income $ 197,495 4.64 % $ 179,830 4.60 %   Net income per common share - basic $ 1.56 $ 1.30 Weighted average shares - basic 126,302 138,083   Net income per common share - diluted $ 1.55 $ 1.30 Weighted average shares - diluted 127,421 138,707   Dividends declared per common share $ 0.335 $ 0.290   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited)       For the First Half Ended*February 26,     February 27,(in thousands, except per share and share amounts)20112010Assets Current assets: Cash and cash equivalents $ 195,357 $ 502,583 Investment securities 242,400 8,197 Merchandise inventories 1,060,212 935,305 Deferred income taxes 65,271 58,321 Prepayments and other current assets   77,503     61,941   Total current assets 1,640,743 1,566,347   Property and equipment, net 1,146,782 1,053,622 Investment securities 142,664 192,851 Other assets   73,055     66,258     Total assets$3,003,244   $2,879,078     Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 16,200 $ — Accounts payable 602,806 584,944 Accrued liabilities 358,354 323,866 Income taxes   34,549     20,423   Total current liabilities 1,011,909 929,233   Long-term debt 532,294 250,000 Other liabilities 220,877 236,481 Deferred income taxes 48,360 34,339 Commitments and contingencies   Shareholders' Equity: Preferred stock, $1 par; authorized and unissued 500,000 shares Common stock, $.10 par; authorized 600,000,000 shares 14,723 14,606 Capital in excess of par 265,746 224,671 Retained earnings 1,821,566 1,528,083 Accumulated other comprehensive loss   (9,251 )   (8,995 ) 2,092,784 1,758,365 Less: common stock held in treasury, at cost   902,980     329,340   Total shareholders' equity   1,189,804     1,429,025     Total liabilities and shareholders' equity$3,003,244   $2,879,078     * Certain adjustments and reclassifications of the amounts for fiscal 2010 have been made to conform to the presentation for fiscal 2011.   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)       For the First Half Ended*(in thousands)February 26,2011     February 27,2010 Cash flows from operating activities: Net income $ 197,495 $ 179,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 88,937 84,368 Deferred income taxes 4,222 14,139 Excess tax benefits from stock-based compensation (4,165 ) (435 ) Stock-based compensation 8,904 8,496 Loss on disposition of property and equipment, including impairment 3,455 4,875 Changes in operating assets and liabilities: Merchandise inventories (32,190 ) 58,492 Income tax refund receivable — 8,618 Prepayments and other current assets (14,497 ) 1,264 Other assets (4,252 ) (817 ) Accounts payable and accrued liabilities (55,079 ) (60,543 ) Income taxes 16,102 18,747 Other liabilities   15,439     (445 )   224,371     316,589     Cash flows from investing activities: Purchases of investment securities (296,299 ) (37,006 ) Sales of investment securities 174,827 5,300 Capital expenditures (139,001 ) (82,851 ) Proceeds from dispositions of property and equipment   546     616     (259,927 )   (113,941 )   Cash flows from financing activities: Revolving credit facility borrowings 46,000 — Repayment of revolving credit facility borrowings (46,000 ) — Issuance of long-term debt 298,482 — Payment of debt issuance costs (6,585 ) (651 ) Repurchases of common stock (407,998 ) (166,002 ) Changes in cash overdrafts (15,032 ) 55,792 Proceeds from exercise of employee stock options 14,909 8,890 Excess tax benefits from stock-based compensation 4,165 435 Payment of dividends   (39,782 )   (37,419 )   (151,841 )   (138,955 )   Net change in cash and cash equivalents (187,397 ) 63,693 Cash and cash equivalents at beginning of period   382,754     438,890   Cash and cash equivalents at end of period $ 195,357   $ 502,583     * Certain adjustments and reclassifications of the amounts for fiscal 2010 have been made to conform to the presentation for fiscal 2011.   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESSelected Additional Information   NET SALES BY CATEGORY:             For the Second Quarter Ended February 26, February 27, (in thousands) 2011 2010 % Change Consumables $1,406,969 $1,271,121 10.7 % Home products 328,633 318,910 3.0 % Apparel and accessories 218,887 214,358 2.1 % Seasonal and electronics 308,680   285,841   8.0 % TOTAL $2,263,169 $2,090,230 8.3 %   For the First Half Ended February 26, February 27, (in thousands) 2011 2010 % Change Consumables $2,762,422 $2,492,978 10.8 % Home products 581,669 554,207 5.0 % Apparel and accessories 411,699 396,657 3.8 % Seasonal and electronics 504,320   469,294   7.5 % TOTAL $4,260,110 $3,913,136 8.9 %     STORES IN OPERATION: For the First half Ended February 26, February 27, 2011 2010 Beginning Store Count 6,785 6,655 New Store Openings 146 86 Store Closings (43 ) (52 ) Ending Store Count 6,888 6,689 Total Square Footage (000s) 58,763 56,983 Total Selling Square Footage (000s) 48,988 47,480 Family Dollar Stores, Inc.Investor Contact:Kiley F. Rawlins, CFA, 704-849-7496krawlins@familydollar.comorMedia Contact:Josh Bravermanm, 704-814-3447jbraverman@familydollar.com