Extremely sensitive to price changes and income changes, she adjusts quickly, often trading down to less expensive brands and private-label merchandise to make her dollar go further. As economic pressures have increased over the last few years, she has adjusted quickly, consolidating shopping trips, curtailing discretionary purchases, and increasing her reliance on coupons and promotions for basic needs.

Understanding the pressures facing our customers we have reacted quickly to serve our customers better. Using insights from customer research, we have expanded our assortment of consumables, notably food to satisfy more fill-in trips. We had reduced inventory levels, especially in discretionary categories mitigating markdown risk, improving our store standards, and enhancing the overall shopping experience.

Through our concept renewal efforts, we began to look at ways to improve the look and feel of our stores through better in-store signage and more intuitive merchandise adjacencies. And we initiated the rollout of our new POS technology to support the acceptance of a wider variety of payment types including food stamps.

These investments have resulted in tangible improvements to the in-store experience and our customers have noticed. As we talk to our customers about their overall satisfaction with shopping at Family Dollar, our satisfaction scores are improving and our customer loyalty ratings are increasing.

As I reflect on the changes of the current environment and our performance so far this year, I believe that a unique opportunity lies before us. Value has become very important to more and more families, regardless of household income. And our assortment of brands, our increased focus on quality, and our improved store standards have positioned us well to capitalize on this opportunity.

As a result our customer traffic and average transaction have increased over the last four quarters. This increase in shopping trips is supported by our customer research which suggests that our core low-income customer is shopping us more frequently and spending more when she shops with us. In addition, we are seeing growth in trips from more middle-income customers.

Our challenge as a management team is to retain these customers and continue to expand our market share as the economy stabilizes and improves. We are taking aggressive steps to ensure that we maximize this unique opportunity.

I believe that this growing importance of value is not a temporary fad. For more families, this recession has altered their views on spending and savings in a structural way and I believe that going forward value will remain a key decision driver.

Since opening our first Family Dollar Store in 1959, we have provided customers with value in a convenient shopping experience. This consistent strategy combined with continuous reinvestment has enabled us to successfully weather a number of challenging economic cycles. Going forward if we can deliver a better, more satisfying shopping experience, we can build stronger customer loyalty and drive greater market share.

To capitalize on the opportunity that lies before us, we are investing aggressively in our business. Most notably we are accelerating our rollout of our store of the future technology and realigning space in our stores to improve the in-store shopping experience. While our aggressive pacing will pressure near-term expenses, we are confident that these investments will deliver higher returns over the longer-term.

Two years ago we began the rollout of a new store technology platform which we often refer to as our store of the future project. In addition to providing our store teams with better workflow management tools and computer-based training modules, this technology supports the acceptance of additional tender types including credit cards and food stamps.

And we are seeing a meaningful return on this investment. Today, food stamps represent a significant opportunity for us as the number of households who rely on food stamps to supplement their income continues to grow rapidly.

As of March 2009 an estimated 15 million households relied on food stamps; an increase of approximately 19% from March of 2008. In addition, this year’s stimulus program provides approximately a 13% increase in average benefit and made some eligibility requirements. I would note that we have seen a significant increase in food stamp transactions since these program changes went into effect in April.

The continued expansion of our food assortment, combined with the upgrade of our store technology positions us well to serve this expanding population of customers. Today, approximately 60% of our stores have the capability to accept food stamps compared with about 25% of the chain a year ago. And we are on track to complete the rollout in all stores by spring of 2010.

As we have discussed, sales of consumables have been the primary driver of sales for several quarters. To give you a sense of the magnitude of these increases, three years ago consumables were approximately 58% of sales. This year, consumables are trending closer to 64% of sales.

Yet despite this shift, our gross profit has actually expanded significantly over the same time period. Our investments in project accelerate and global sourcing as well as improvements in freight optimization, inventory management, and employee retention have enabled us to offset pressures from inflation and mix.

Ideally, we want to balance traffic-driving consumables with profit driving discretionary categories, but we also want to satisfy customer demand. As a result we continue to expand our selection of these key categories. To accommodate this growth and to improve the in-store experience we are realigning space in our stores.

Not only will this initiative provide more space for high growth categories like food and paper, but these efforts will enable us to develop multiple but manageable prototypes to facilitate future space allocation efforts. In addition, we intend to incorporate some of the most customer impactful elements of our concept renewal work into the stores; such as signage and more intuitive merchandise adjacencies.

Since initiating these resets in late May, we have completed work in about 1,500 stores with minimal disruption to the customer. While ultimately all stores will incorporate many of these changes we expect to impact about 40% of the chain during the fourth quarter. Yes, we are moving quickly but we have worked to mitigate disruption risk as we implement these changes.

We have developed a comprehensive workflow plan and established multiple implementation teams throughout the store organization to execute the space changes. Our supply chain group has positioned additional inventory in stores prior to implementation to minimize out-of-stocks. And we have structured the pacing in such a way that we can speed up if execution exceeds our expectations, or slow down if changes prove to be too disruptive to the customer.