This summary is based on the first quarter fiscal 2008 earnings call conducted by Family Dollar Stores, Inc. (FDO: chart) on January 8, 2007.
Management:
Chairman of the Board, Chief Executive Officer: Howard R. Levine
President, Chief Operating Officer: R. James Kelly
Chief Financial Officer, Senior Vice President: Kenneth T. Smith
Vice President, Investor Relations and Communications: Kiley F. Rawlins
Key Investors Issues
- EPS were 37 cents per compared to 36 cents per share last year.
- Net income was $51.9 million compared to $54.1 million in the year ago quarter.
- Revenue rose 5% to $1.68 billion, from $1.6 billion a year ago.
Second Quarter Highlights
Sales increased 5.2%, driven by a 6% increase in sales of consumables and a 14.5% increase in sales of seasonal merchandise.
The first quarter this year included a week of post-Thanksgiving sales, which benefited sales of toys and trim-a-tree.
Comparable store sales, which the company reports on a like period basis, declined 1%, driven primarily by lower registered transactions.
- Average transaction size increased.
- Gross margin as a percentage of sales declined 30 basis points.
- Higher markdowns more than offset improved merchandise markup.
- The company incurred 60 to 70 basis points of additional markdown expense as it moved y to manage inventory productivity in the face of soft sales in discretionary categories, particularly apparel.
- However, continued strength in prepaid services and an additional week of holiday sales mitigated much of the impact of the higher markdowns.
Inventory shrinkage increased.
While inventory shrinkage can be somewhat volatile from quarter to quarter, the company continues to believe that the improvements made in store manager retention and inventory productivity will result in lower inventory shrinkage over time.
- While SG&A expenses were lower than planned, SG&A expense increased to 29.2% of sales compared with 28.9% of sales in the first quarter last year.
- As a percentage of sales, store occupancy costs, expenses related to the rollout of store of the future platform, and advertising expenses to support holiday sales were all higher. Offsetting much of these increases were lower insurance expense and professional fees.
With the goal of better managing store occupancy costs, the company is creating a more proactive facility management platform which includes the implementation of a new lease management system that provides with better visibility to store lease expenses and also includes a more proactive approach to maintenance and repair needs.
This total cost of ownership view is expected to result in better management of occupancy costs over the longer term but has created some timing differences during the implementation period.
Over the last two years, as the company has stabilized store management teams, it has seen benefits in other areas of business, most notably, workers’ compensation claims. In fact, in seven of the last eight quarters, the company has experienced a reduction in insurance costs as a percentage of sales.
Professional fees were lower.
- Last year, the company spent approximately $4 million in expenses related to shareholder derivative actions.
- Net interest expense declined, reflecting both higher interest income and lower interest expense, and the effective tax rate declined to 37.1%, reflecting the benefit of federal jobs tax credits and changes in state income taxes.
- Average weighted shares were approximately 10 million lower than the first quarter of fiscal 2007, reflecting stock buy-back program.
