Family Dollar's fiscal Q3 earnings fell to US$81.1M from US$120.9M a year ago as sales rose 3.3% to US$2.66B, comparable-store sales fell 1.8% as result of fewer customer transactions; Q3 sales strongest in consumables category
Cindy Allen
MATTHEWS, North Carolina
,
July 10, 2014
(press release)
–
Earnings Per Diluted Share of $0.71; Adjusted Diluted EPS of $0.85 Family Dollar Stores, Inc. (FDO) today reported that for the third quarter of fiscal 2014 ended May 31, 2014, net sales increased 3.3% to $2.66 billion. Net income per diluted share for the third quarter of fiscal 2014 was $0.71. Adjusted third quarter fiscal 2014 net income per diluted share was $0.85 as compared to $1.05 in the third quarter of fiscal 2013. This year’s adjusted fiscal third quarter results exclude the negative impact on diluted net income per common share of $0.14 related to the Company’s restructuring initiatives as part of its previously announced strategic actions to strengthen its value proposition, increase operational efficiencies and improve financial performance. The tables included in this press release provide a reconciliation of GAAP to non-GAAP measures. “We are executing our previously announced restructuring initiatives to improve our performance,” said Howard R. Levine, Chairman and CEO. “Our recent investment to permanently lower prices is resonating with customers; we are seeing savings from our workforce optimization efforts; and we are on track to close approximately 370 underperforming stores by the end of the fiscal year. We remain confident that these steps will position the Company to improve our financial performance and deliver higher long-term shareholder returns.” “Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment,” continued Levine. “We are pleased that our comparable store sales results in the third quarter in all four merchandise categories improved relative to our second quarter results. Although our sales results remain below our expectations, we are encouraged by the improving trends.” Net sales for the third quarter ended May 31, 2014, increased 3.3% to $2.66 billion from $2.57 billion in the third quarter of fiscal 2013 ended June 1, 2013. Comparable store sales for the 13-week period decreased 1.8% as a result of fewer customer transactions, partially offset by an increase in the average customer transaction value. Sales in the third quarter of fiscal 2014 were strongest in the Consumables category, driven primarily by strong growth in refrigerated/frozen food and tobacco. Gross profit for the third quarter of fiscal 2014 was $910.9 million or 34.3% of net sales. During the quarter, the Company implemented a series of restructuring initiatives, including plans to close approximately 370 underperforming stores across the chain by the end of fiscal 2014. As a result, the Company incurred a $1.5 million inventory write-down in an effort to sell through merchandise at stores scheduled to close. Excluding the inventory write-down, adjusted third quarter fiscal 2014 gross profit increased 2.2% to $912.3 million, or 34.3% of net sales, compared to $892.5 million, or 34.7% of net sales, in the third quarter of fiscal 2013. As a percentage of sales, the impact on gross profit of stronger sales of lower-margin consumables, lower markups and higher markdowns was partially offset by lower inventory shrinkage. Selling, general and administrative expenses (“SG&A”), as a percentage of net sales, were 28.8% in the third quarter of fiscal 2014 compared to 27.4% in the third quarter of fiscal 2013. Most expenses were deleveraged as a result of the decrease in comparable store sales. As a percentage of net sales, the impact on SG&A of higher store occupancy, labor and advertising costs was partially offset by lower incentive compensation expenses. In the third quarter of fiscal 2014, the Company incurred a $23.0 million charge as part of its previously announced restructuring initiatives including planned store closures and workforce optimization. This restructuring charge consisted primarily of property and equipment impairments and termination benefits directly associated with the store closings and workforce optimization. Operating profit in the third quarter of fiscal 2014 was $120.8 million. As discussed above, the Company’s third quarter fiscal 2014 operating profit includes $24.5 million of charges related to the Company’s restructuring activities. Excluding the charges, adjusted third quarter fiscal 2014 operating profit was $145.3 million, or 5.5% of net sales, compared with $188.4 million, or 7.3% of net sales, in the third quarter of fiscal 2013. The effective tax rate was 33.1% for the third quarter of fiscal 2014 compared with 36.2% for the third quarter of fiscal 2013. The effective tax rate was lower primarily due to foreign tax benefits associated with the Company’s global sourcing efforts and increased tax benefits associated with federal jobs tax credits. Net income for the third quarter of fiscal 2014 was $81.1 million. Adjusted third quarter fiscal 2014 net income was $96.5 million as compared to $120.9 million in the third quarter of fiscal 2013. The Company’s merchandise inventories as of May 31, 2014, were $1.59 billion compared with $1.47 billion as of June 1, 2013. Average inventory per store at the end of the quarter was 2.1% higher than the average inventory per store at the end of the third quarter of fiscal 2013. During the third quarter of fiscal 2014, the Company opened 111 new stores, closed 3 stores, and renovated, relocated or expanded 266 stores. In the 39-week period ended May 31, 2014, capital expenditures were $307.2 million compared with $599.7 million in the 40-week period ended June 1, 2013. During the 39-week period, the Company spent $106.5 million related to new stores; $92.9 million on its store renovation program; $50.6 million on existing stores; $37.0 million related to corporate and technology investments; and $20.2 million on supply chain investments. In the 39-week period ended May 31, 2014, the Company repurchased approximately 1.8 million shares of its common stock for a total cost of $125.0 million and paid $94.8 million in dividends to shareholders. As of May 31, 2014, the Company had authorization to purchase up to an additional $245.8 million of its common stock. Strategic Plan Update As part of its ongoing business review, the Company is taking deliberate actions to strengthen its value proposition, increase operational efficiencies and improve its financial performance. As previously announced, the Company has: In addition, the Company is investing in longer-term initiatives to drive more profitable growth. These initiatives include: The Company’s in-depth business review remains on-going, and the Board and management team continue to evaluate additional opportunities to drive efficiency in stores, and further increase value and convenience for the customer. Outlook For the fourth quarter of fiscal 2014, the Company expects that comparable store sales will be approximately flat 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 $3.07 and $3.17, excluding approximately $0.51 per share related to restructuring charges. Including the restructuring charges, the Company expects earnings per diluted share will be between $2.56 and $2.66. The Company's outlook for fiscal 2014 is based on the following assumptions which may or may not prove valid: 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, restructuring charges, restructuring initiatives, workforce optimization, 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, July 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, July 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 8,200 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. (13 Weeks) (13 Weeks) (39 Weeks) (40 Weeks) Common stock, $.10 par; authorized 600,000,000 shares (39 Weeks) (40 Weeks) Adjustments to reconcile net income to net cash provided by operating activities: For the First Three Quarters Ended
Comparable Store Sales Decreased 1.8%
June Comparable Store Sales Approximately Flat
Management Reaffirms Guidance for Fourth Quarter of Fiscal 2014
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Third Quarter Ended
(in thousands, except per share amounts)
May 31, 2014
% of Net Sales
June 1, 2013
% of Net Sales
Net sales
$
2,658,964
100.00
%
$
2,573,506
100.00
%
Cost of sales
1,746,625
65.69
%
1,681,048
65.32
%
Cost of sales - restructuring
1,486
0.06
%
-
0.00
%
Gross margin
910,853
34.26
%
892,458
34.68
%
Selling, general and administrative expenses
767,049
28.85
%
704,038
27.36
%
Restructuring
22,996
0.86
%
-
0.00
%
Operating profit
120,808
4.54
%
188,420
7.32
%
Investment income
58
0.00
%
91
0.00
%
Interest expense
7,959
0.30
%
6,071
0.24
%
Other income
8,400
0.32
%
7,196
0.28
%
Income before income taxes
121,307
4.56
%
189,636
7.37
%
Income taxes
40,160
1.51
%
68,698
2.67
%
Net income
$
81,147
3.05
%
$
120,938
4.70
%
Net income per common share - basic
$
0.71
$
1.05
Weighted average shares - basic
113,829
114,977
Net income per common share - diluted
$
0.71
$
1.05
Weighted average shares - diluted
114,150
115,478
Dividends declared per common share
$
0.31
$
0.26
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the First Three Quarters Ended
(in thousands, except per share amounts)
May 31, 2014
% of Net Sales
June 1, 2013
% of Net Sales
Net sales
$
7,875,276
100.00
%
$
7,889,191
100.00
%
Cost of sales
5,203,802
66.08
%
5,202,889
65.95
%
Cost of sales - restructuring
1,486
0.02
%
-
0.00
%
Gross margin
2,669,988
33.90
%
2,686,302
34.05
%
Selling, general and administrative expenses
2,265,608
28.77
%
2,153,936
27.30
%
Restructuring
22,996
0.29
%
-
0.00
%
Operating profit
381,384
4.84
%
532,366
6.75
%
Investment income
162
0.00
%
275
0.00
%
Interest expense
22,256
0.28
%
19,968
0.25
%
Other income
23,334
0.30
%
20,984
0.27
%
Income before income taxes
382,624
4.86
%
533,657
6.76
%
Income taxes
132,581
1.68
%
192,295
2.44
%
Net income
$
250,043
3.18
%
$
341,362
4.33
%
Net income per common share - basic
$
2.19
$
2.96
Weighted average shares - basic
114,066
115,321
Net income per common share - diluted
$
2.18
$
2.95
Weighted average shares - diluted
114,458
115,869
Dividends declared per common share
$
0.83
$
0.68
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of
May 31,
June 1,
(in thousands, except per share and share amounts)
2014
2013
Assets
Current assets:
Cash and cash equivalents
$
163,734
$
123,462
Short-term investment securities
18,007
26,665
Restricted cash and investments
33,979
57,897
Merchandise inventories
1,591,562
1,474,410
Deferred income taxes
32,798
71,305
Income tax refund receivable
38,241
4,294
Prepayments and other current assets
212,338
143,881
Total current assets
2,090,659
1,901,914
Property and equipment, net
1,786,911
1,832,178
Investment securities
16,646
23,366
Other assets
68,888
92,946
Total assets
$
3,963,104
$
3,850,404
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings
$
276,000
$
219,000
Current portion of long-term debt
16,200
16,200
Accounts payable
676,079
680,118
Accrued liabilities
327,999
351,422
Income taxes
4,997
8,429
Total current liabilities
1,301,275
1,275,169
Long-term debt
484,188
500,237
Other liabilities
289,128
283,442
Deferred gain
206,761
214,179
Deferred income taxes
25,169
56,233
Commitments and contingencies
—
—
Shareholders' Equity:
Preferred stock, $1 par; authorized and unissued 500,000 shares
—
—
12,062
12,000
Capital in excess of par
325,623
293,523
Retained earnings
1,724,871
1,497,311
Accumulated other comprehensive loss
(1,515)
(1,441)
Common stock held in treasury, at cost
(404,458)
(280,249)
Total shareholders' equity
1,656,583
1,521,144
Total liabilities and shareholders' equity
$
3,963,104
$
3,850,404
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the First Three Quarters Ended
(in thousands)
May 31, 2014
June 1, 2013
Cash flows from operating activities:
Net income
$
250,043
$
341,362
Depreciation and amortization
195,671
176,895
Amortization of deferred gain
(12,642
)
(11,037
)
Impairment on property and equipment - restructuring
19,041
-
Deferred income taxes
9,190
(682
)
Excess tax benefits from stock-based compensation
(5,510
)
(13,360
)
Stock-based compensation
12,639
13,015
Loss on disposition of property and equipment
8,335
5,018
Changes in operating assets and liabilities:
Merchandise inventories
(124,546
)
(48,247
)
Prepayments and other current assets
(50,768
)
(96,249
)
Other assets
9,385
(1,877
)
Accounts payable and accrued liabilities
(33,042
)
(26,889
)
Income taxes
(24,728
)
(27,723
)
Other liabilities
(67
)
15,125
253,001
325,351
Cash flows from investing activities:
Purchases of investment securities
(50,422
)
(43,475
)
Sales of investment securities
63,715
22,638
Net change in restricted cash
390
63,161
Capital expenditures
(307,183
)
(599,685
)
Net proceeds from sale-leaseback
32,538
163,520
Proceeds from dispositions of property and equipment
563
2,780
(260,399
)
(391,061
)
Cash flows from financing activities:
Short-term borrowings
1,916,000
1,753,000
Repayment of short-term borrowings
(1,640,000
)
(1,549,000
)
Repayment of long-term debt
(16,200
)
(16,200
)
Repurchases of common stock
(125,038
)
(74,954
)
Changes in cash overdrafts
(29,138
)
31,495
Proceeds from exercise of employee stock options
13,794
17,572
Excess tax benefits from stock-based compensation
5,510
13,360
Payment of dividends
(94,795
)
(78,434
)
30,133
96,839
Net change in cash and cash equivalents
22,735
31,129
Cash and cash equivalents at beginning of period
140,999
92,333
Cash and cash equivalents at end of period
$
163,734
$
123,462
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
Selected Additional Information
RECONCILIATION OF NON-GAAP DISCLOSURES:
May 31, 2014
June 1, 2013
May 31, 2014
June 1, 2013
(in thousands, except per share amounts)
(13 Weeks)
(13 Weeks)
(39 Weeks)
(40 Weeks)
Gross profit
$
910,853
$
892,458
$
2,669,988
$
2,686,302
Restructuring charges - Cost of sales
1,486
-
1,486
-
Adjusted gross profit
$
912,339
$
892,458
$
2,671,474
$
2,686,302
Operating profit
$
120,808
$
188,420
$
381,384
$
532,366
Restructuring charges - Cost of sales
1,486
-
1,486
-
Restructuring charges - SG&A
22,996
-
22,996
-
Adjusted operating profit
$
145,290
$
188,420
$
405,866
$
532,366
Net income
$
81,147
$
120,938
$
250,043
$
341,362
After-tax impact of restructuring charges - Cost of sales
932
-
932
-
After-tax impact of restructuring charges - SG&A
14,423
-
14,423
-
Adjusted net income
$
96,502
$
120,938
$
265,398
$
341,362
Diluted net income per common share
$
0.71
$
1.05
$
2.18
$
2.95
Per share impact of restructuring charges - Cost of sales
0.01
-
0.01
-
Per share impact of restructuring charges - SG&A
0.13
-
0.13
-
Adjusted diluted net income per common share
$
0.85
$
1.05
$
2.32
$
2.95
NET SALES BY CATEGORY:
For the Third Quarter Ended
May 31, 2014
June 1, 2013
(in thousands)
(13 Weeks)
(13 Weeks)
% Change
Consumables
$
1,948,174
$
1,866,714
4.4
%
Home products
260,129
264,268
-1.6
%
Apparel and accessories
210,860
206,523
2.1
%
Seasonal and electronics
239,801
236,001
1.6
%
TOTAL
$
2,658,964
$
2,573,506
3.3
%
For the First Three Quarters Ended
May 31, 2014
June 1, 2013
(in thousands)
(39 Weeks)
(40 Weeks)
% Change
Consumables
$
5,753,716
$
5,667,501
1.5
%
Home products
782,404
828,832
-5.6
%
Apparel and accessories
565,992
591,438
-4.3
%
Seasonal and electronics
773,164
801,420
-3.5
%
TOTAL
$
7,875,276
$
7,889,191
-0.2
%
STORES IN OPERATION:
May 31, 2014
June 1, 2013
(39 Weeks)
(40 Weeks)
Beginning Store Count
7,916
7,442
New Store Openings
355
380
Store Closings
(25
)
(21
)
Ending Store Count
8,246
7,801
Total Square Footage (000s)
71,031
67,016
Total Selling Square Footage (000s)
59,488
55,994
INCREASE
6.2
%
7.8
%
INVESTOR CONTACT:
Kiley F. Rawlins, CFA, 704-708-2858
krawlins@familydollar.com
or
MEDIA CONTACT:
Bryn R. Winburn, 704-708-1653
bwinburn@familydollar.com
© 2024 Business Wire, Inc., All rights reserved.