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Press release from Business Wire

Family Dollar Reports 17th Consecutive Quarter of Double-Digit Earnings Per Share Growth

<ul> <li class='bwlistitemmargb'> <i><b>Earnings Per Diluted Share Increased 16.5% to a Record $1.06</b></i> </li> <li class='bwlistitemmargb'> <i><b>Comparable Store Sales Increased 5.0%</b></i> </li> <li class='bwlistitemmargb'> <i><b>Two Sale-Leaseback Transactions Completed, Generating $356.4 Million in Proceeds</b></i> </li> <li class='bwlistitemmargb'> <i><b>Management Reaffirms Guidance for FY12</b></i> </li> </ul>

Thursday, June 28, 2012

Family Dollar Reports 17th Consecutive Quarter of Double-Digit Earnings Per Share Growth07:00 EDT Thursday, June 28, 2012 MATTHEWS, N.C. (Business Wire) -- Family Dollar Stores, Inc. (NYSE: FDO) today reported that net income for the third quarter of fiscal 2012, ended May 26, 2012, increased 12.1% to $124.5 million compared with net income of $111.1 million for the third quarter of fiscal 2011. Net income per diluted share for the quarter increased 16.5% to $1.06 compared with $0.91 for the third quarter of fiscal 2011. “Today, we reported another quarter of strong double-digit earnings growth. I am especially pleased that we delivered these record results even as we launched multiple initiatives late in the quarter to increase our relevancy to the customer and drive greater store productivity,” said Howard R. Levine, Chairman and CEO. “Delivering stronger shareholder returns begins with increasing sales per square foot, and this quarter, we began to implement a number of initiatives to broaden our consumable assortment and satisfy more of our customers' shopping trips. As planned, most of these initiatives began late in the quarter and had little impact on our third quarter sales results,” continued Levine. “We are on schedule, and I am very pleased with the progress our teams have made in such a short period of time. As we complete most of these initiatives in the fourth quarter, we will have a fully competitive assortment and will be well-positioned to accelerate sales productivity further.” Third Quarter Results Total net sales for the third quarter of fiscal 2012 increased 9.6% to $2.36 billion compared with total net sales of $2.15 billion in the third quarter of fiscal 2011. Comparable store sales increased 5.0%. This increase was a result of increased customer traffic, as measured by the number of register transactions, and an increase in the average customer transaction value. Sales were strongest in the Seasonal and Electronics and the Consumables categories. Gross profit in the third quarter of fiscal 2012 increased 8.4% to $845.3 million compared with $779.8 million in the third quarter of fiscal 2011. Gross profit, as a percentage of net sales, was 35.8% in the quarter compared to 36.2% in the third quarter of fiscal 2011. As a percentage of sales, the impact of stronger sales of lower-margin consumables, higher markdowns and increased inventory shrinkage were partially offset by higher markups resulting from the Company's continued investments in private brands, global sourcing and price management capabilities, and lower freight expense. Selling, general and administrative (SG&A) expenses, as a percentage of net sales, were 27.4% in the third quarter of fiscal 2012 compared with 27.7% in the third quarter of fiscal 2011. As a percentage of net sales, lower insurance expense and lower store labor expenses were partially offset by higher legal expenses. Operating profit increased 8.2% to $199.4 million for the third quarter of fiscal 2012 as compared to $184.4 million in the third quarter of fiscal 2011. As a percentage of net sales, operating profit was 8.4% in the third quarter of fiscal 2012 as compared to 8.6% in the third quarter of fiscal 2011. The income tax rate in the third quarter of fiscal 2012 was 35.8% as compared to 37.5% in the third quarter of fiscal 2011. The lower tax rate was primarily a result of changes in uncertain tax positions and lower state income taxes. The Company's inventory at May 26, 2012, was $1.39 billion compared with $1.13 billion at May 28, 2011. Average inventory per store at the end of the third quarter of fiscal 2012 was approximately 17% higher than the average inventory per store at the end of the third quarter 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. In the first three quarters of fiscal 2012, capital expenditures were $391.4 million compared with $230.3 million in the first three quarters of fiscal 2011. The increase in capital expenditures was primarily a result of increased new store openings, expenditures related to the construction of the Company's 10th distribution center, and investments related to store renovations, relocations and expansions. During the first three quarters of fiscal 2012, the Company opened 287 new stores, closed 43 stores and renovated, relocated or expanded 583 stores. During the third quarter, the Company completed a sale-leaseback transaction for 137 stores with net proceeds, after transaction expenses, of $177.6 million. In June 2012, the Company completed an additional sale-leaseback transaction for another 137 stores with net proceeds of $178.8 million, after transaction expenses. During the first three quarters of fiscal 2012, the Company repurchased approximately 1.7 million shares of its common stock for a total cost of $91.6 million. As of May 26, 2012, the Company had the authorization to purchase up to an additional $245.7 million of its common stock. Outlook For the fourth quarter, the Company expects that comparable store sales will increase between 5% and 7% and that earnings per diluted share will be between $0.71 and $0.81, compared with $0.66 in the fourth quarter of fiscal 2011. For the full year, the Company expects that earnings per diluted share will be between $3.60 and $3.70, compared with $3.12 in fiscal 2011. The Company's outlook for fiscal 2012 is based on the following assumptions which may or may not prove valid: An increase in net sales of between 9% and 10%; An increase in comparable store sales of around 5%; Approximately 450-500 new store openings and 60-80 store closings; Gross margin pressure for the full year; SG&A expense growth of between 6% and 7%; An effective income tax rate between 36.5% and 37%; Weighted average diluted shares of approximately 118 million; and Capital expenditures of between $650 million and $675 million to support new store openings, store renovations, purchases of stores, merchandising initiatives, and expansion of the Company's supply chain. 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 the rest of fiscal 2012. 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, June 28, 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 7,200 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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited)           For the Third Quarter Ended(in thousands, except per share amounts)May 26, 2012   % of NetSalesMay 28, 2011   % of NetSales   Net sales $ 2,359,957 100.00 % $ 2,153,395 100.00 %   Cost of sales   1,514,684   64.18 %   1,373,639   63.79 %   Gross margin 845,273 35.82 % 779,756 36.21 %   Selling, general and administrative expenses   645,867   27.37 %   595,403   27.65 %   Operating profit 199,406 8.45 % 184,353 8.56 %   Investment income 274 0.01 % 455 0.02 %   Interest expense   5,635   0.24 %   7,144   0.33 %   Income before income taxes 194,045 8.22 % 177,664 8.25 %   Income taxes   69,505   2.95 %   66,563   3.09 %   Net income $ 124,540 5.28 % $ 111,101 5.16 %   Net income per common share - basic $ 1.07 $ 0.91 Weighted average shares - basic 116,815 121,546   Net income per common share - diluted $ 1.06 $ 0.91 Weighted average shares - diluted 117,633 122,656   Dividends declared per common share $ 0.21 $ 0.18   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited)           For the Three Quarters Ended(in thousands, except per share amounts)May 26, 2012   % of NetSalesMay 28, 2011   % of NetSales   Net sales $ 6,966,880 100.00 % $ 6,413,505 100.00 %   Cost of sales   4,506,636   64.69 %   4,106,817   64.03 %   Gross margin 2,460,244 35.31 % 2,306,688 35.97 %   Selling, general and administrative expenses   1,904,800   27.34 %   1,800,388   28.07 %   Operating profit 555,444 7.97 % 506,300 7.89 %   Investment income 716 0.01 % 1,264 0.02 %   Interest expense   18,772   0.27 %   15,244   0.24 %   Income before income taxes 537,388 7.71 % 492,320 7.68 %   Income taxes   196,079   2.81 %   183,724   2.86 %   Net income $ 341,309 4.90 % $ 308,596 4.81 %   Net income per common share - basic $ 2.91 $ 2.47 Weighted average shares - basic 117,331 124,716   Net income per common share - diluted $ 2.89 $ 2.45 Weighted average shares - diluted 118,176 125,833   Dividends declared per common share $ 0.600 $ 0.515   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited)       As of*(in thousands, except per share and share amounts)May 26, 2012May 28, 2011Assets Current assets: Cash and cash equivalents $ 120,901 $ 167,428 Short-term investment securities 21,006 190,827 Restricted cash and investments 82,197 — Merchandise inventories 1,387,380 1,134,403 Deferred income taxes 53,212 52,581 Prepayments and other current assets   44,137   74,531 Total current assets 1,708,833 1,619,770   Property and equipment, net 1,420,034 1,190,715 Investment securities 60,888 106,923 Other assets   83,289   71,228   Total assets$3,273,044$2,988,636   Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 16,200 $ 16,200 Accounts payable 695,292 604,308 Accrued liabilities 300,290 292,943 Income taxes   25,285   35,826 Total current liabilities 1,037,067 949,277   Long-term debt 516,283 532,332 Other liabilities 328,101 274,882 Deferred income taxes 79,099 49,897 Commitments and contingencies — —   Shareholders' Equity: Preferred stock, $1 par; authorized and unissued 500,000 shares — — Common stock, $.10 par; authorized 600,000,000 shares 11,911 14,730 Capital in excess of par 256,898 270,547 Retained earnings 1,153,453 1,911,024 Accumulated other comprehensive loss (3,750) (6,558) Common stock held in treasury, at cost   (106,018)   (1,007,495) Total shareholders' equity   1,312,494   1,182,248   Total liabilities and shareholders' equity$3,273,044$2,988,636   *Certain reclassifications of the amounts for fiscal 2011 have been made to conform to the presentation for fiscal 2012.   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)     For the Three Quarters Ended*(in thousands)   May 26, 2012May 28, 2011 Cash flows from operating activities: Net income $ 341,309 $ 308,596 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 153,130 135,026 Deferred income taxes 3,336 18,031 Excess tax benefits from stock-based compensation (12,234 ) (4,641 ) Stock-based compensation 14,033 11,369 Loss on disposition of property and equipment, including impairment 10,331 5,674 Changes in operating assets and liabilities: Merchandise inventories (232,720 ) (106,381 ) Prepayments and other current assets 27,308 (11,514 ) Other assets (1,242 ) (2,723 ) Accounts payable and accrued liabilities (72,275 ) (82,200 ) Income taxes 30,637 17,379 Other liabilities   (7,766 )   18,872     253,847     307,488     Cash flows from investing activities: Purchases of investment securities (92,559 ) (338,482 ) Sales of investment securities 217,017 308,470 Net change in restricted cash and investments (90,930 ) — Capital expenditures (391,418 ) (230,302 ) Proceeds from sale-leaseback 177,552 — Proceeds from dispositions of property and equipment   739     812     (179,599 )   (259,502 )   Cash flows from financing activities: Revolving credit facility borrowings 306,300 46,000 Repayment of revolving credit facility borrowings (306,300 ) (46,000 ) Issuance of long-term debt — 298,482 Payment of debt issuance costs — (6,585 ) Repayment of long-term debt (16,200 ) — Repurchases of common stock (91,573 ) (512,513 ) Changes in cash overdrafts 43,016 (2,321 ) Proceeds from exercise of employee stock options 24,620 16,780 Excess tax benefits from stock-based compensation 12,234 4,641 Payment of dividends   (66,849 )   (61,796 )   (94,752 )   (263,312 )   Net change in cash and cash equivalents (20,504 ) (215,326 ) Cash and cash equivalents at beginning of period   141,405     382,754   Cash and cash equivalents at end of period $ 120,901   $ 167,428     *Certain reclassifications of the amounts for fiscal 2011 have been made to conform to the presentation for fiscal 2012.   FAMILY DOLLAR STORES, INC., AND SUBSIDIARIESSelected Additional Information       NET SALES BY CATEGORY:For the Third Quarter Ended(in thousands)May 26, 2012May 28, 2011% Change Consumables $1,626,004 $1,448,655 12.2 % Home products 270,015 275,048 -1.8 % Apparel and accessories 226,783 224,242 1.1 % Seasonal and electronics 237,155   205,450   15.4 % TOTAL $2,359,957 $2,153,395 9.6 %   For the Three Quarters Ended(in thousands)May 26, 2012May 28, 2011% Change Consumables $4,723,782 $4,211,078 12.2 % Home products 842,900 856,717 -1.6 % Apparel and accessories 618,930 635,940 -2.7 % Seasonal and electronics 781,268   709,770   10.1 % TOTAL $6,966,880 $6,413,505 8.6 %     STORES IN OPERATION:For the Three Quarters EndedMay 26, 2012May 28, 2011 Beginning Store Count 7,023 6,785 New Store Openings 287 206 Store Closings (43 ) (48 ) Ending Store Count 7,267 6,943 Total Square Footage (000s) 62,362 59,274 Total Selling Square Footage (000s) 51,945 49,411 Family Dollar Stores, Inc.INVESTOR CONTACTS:Kiley F. Rawlins, CFA704-849-7496krawlins@familydollar.comorKevin Powers, 704-708-7679kpowers@familydollar.comorMEDIA CONTACT:Josh Braverman, 704-814-3447jbraverman@familydollar.com