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Market Update : 
Family Dollar Stores Q1 Earnings Call Transcript
Author: Staff
Last Update: 7:03 PM ET January 28 2009

Family Dollar Stores, Inc. (FDO)
Q1 2009 Earnings Call Transcript
January 7, 2009 10:00 a.m. ET


Kiley F. Rawlins – Vice President of Investor Relations and Communications
Kenneth T. Smith – Senior Vice President, Chief Financial Officer
Howard R. Levine – Chairman, Chief Executive Officer
R. James Kelly – President, Chief Operating Officer


Adrianne Shapira – Goldman Sachs & Co.
Patrick McKeever – MKM Partners, LLC
Michael Baker – Deutsche Bank Securities Inc.
Dan Wewer – Raymond James & Associates, Inc.
David Mann – Johnson Rice & Company
John Zolidis – Buckingham Research Group, Inc.
Charles Grom – J.P. Morgan Securities, Inc.
Ivy Jack - Barclays Capital Inc.
Mitch Kaiser – Piper Jaffray & Co.
Jacob Strom – ECP
Deborah Weinswig – Citigroup Global Markets
Joseph Feldman – Telsey Advisory Group
Brian Kocher - Patara Capital Management
Joan Storms – Wedbush Morgan Securities



Good morning. My name is Julie and I will be your conference facilitator today. I would like to welcome everyone to the Family Dollar earnings conference call. All lines have been placed on mute to prevent any background noise. After the company’s prepared remarks there will be a brief question-and-answer period. The question-and-answer queue will not be available until after the company has concluded their prepared remarks, so please wait until after the speakers have finished their remarks before attempting to enter the queue.

I would now like to introduce Ms. Kiley Rawlins, Vice President of Investor Relations and Communications. Ms. Rawlins, you may begin your conference.

Kiley F. Rawlins

Thank you, Julie. Good morning, everyone, and thank you for joining us today. Before we begin you should know that our comments today will include forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. These statements address plans and activities or events which we expect will or may occur in the future. However, a number of factors as set forth in our SEC filings and press releases could cause actual results to differ from our plans. We refer you to and specifically incorporate the cautionary and risk statements contained in today’s press release and in our SEC filings. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today, January 7th, 2009. We have no obligation to publicly update or revise our forward-looking statements except as required by law and you should not expect us to do so.

With me on the call this morning are Howard Levine, Chairman and CEO, Jim Kelly, President and COO, and Ken Smith, Chief Financial Officer.

We’ll begin our discussion today with a review of first quarter results from Ken. Then Howard will share some of his thoughts regarding our performance and our operating priorities this year. Following our prepared remarks you will have an opportunity to ask questions. Please remember that the queue for the question-and-answer session will not be available until after we finished our prepared remarks. So that we may accommodate as many people as possible, please limit your questions to one question with no more than one follow up question during the Q&A session.

Now I’d like to turn the call over to Ken Smith. Ken?

Kenneth T. Smith

Thanks, Kiley. This morning I will review some highlights of the first quarter and then discuss our outlook for the second quarter and the full year. Today, we reported first quarter earnings of $0.42 per diluted share compared with $0.37 per diluted share in the first quarter last year; an increase of 13.5%. Although our sales results were near the low end of our original expectations, better than expected gross margin performance resulted in an expansion of operating margin.

For the quarter, net sales increased 4.2% and comp sales increased 2.1%. Both customer traffic as defined by register transactions and the average customer purchase increased in the quarter.

Sales in the quarter were adversely impacted by two noteworthy calendar shifts at the end of the period. First, the later Thanksgiving this year resulted in one less week of holiday sales in the reporting period as compared with the first quarter last year. In addition, the first quarter ended on November 29th this year as compared to December 1st last year, resulting in a shift of the first of the month money flow and our corresponding advertising circular into the first week of the second quarter. I would note that, excluding the last two weeks of the quarter, comp sales increased approximately 4%.

Consumables continued to be the primary driver of sales, increasing approximately 10% on a comp basis in the first quarter. Sales in more discretionary categories continued to be weak, reflecting both the current economic environment and the impact of the previously discussed calendar shifts during the quarter. Consumables increased to approximately 66% of sales as compared with approximately 61% of sales last year.

Gross profit as a percentage of sales increased approximately 80 basis points in the quarter despite the significant mix shift. While we saw improvements in transportation expense, inventory shrinkage, and purchase mark-up, much of the improvement in gross margin can be attributed to lower markdowns. As you may recall, last year we moved aggressively to manage our inventory productivity in the face of softer than expected sales in discretionary categories. This year our continued focus on improving inventory productivity and managing inventory risk resulted in lower seasonal markdowns in the first quarter.

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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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