Family Dollar Stores, Inc. (FDO)
Q2 2010 Earnings Call Transcript
April 7, 2010 10:00 a.m. ET

Executives

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

Analysts

Joseph Parkhill – Morgan Stanley
Deborah Weinswig - Citigroup
Mark Miller - William Blair & Company, L.L.C.
Bernard Sosnick – Gilford Securities, Inc.
Adrianne Shapira - Goldman Sachs
Aaron Stein – JPMorgan Chase & Co.
Meredith Adler - Barclays Capital
Dan Wewer – Raymond James & Associates
Scott Ciccarelli – RBC Capital Markets
Jody Yen – Buckingham Research
Dan Binder – Jefferies & Co.

Presentation

Operator

Good morning. My name is Ed and I will be your conference facilitator today. I’d 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 Miss Kiley Rawlins, Vice President of Investor Relations and Communications. Miss Rawlins, you may begin your conference.

Kiley Rawlins

Thank you, Ed and good morning, everyone. Thank you for joining us today. Before we begin you should note that our comments today will include forward-looking statements regarding various operating initiatives, sales and profitability metrics and capital expenditures, as well as our expectations for future financial performance.

While these statements address plans or events which we expect will, or may occur in the future, a number of factors as set forth in our SEC filings and press releases could cause actual results to differ from our expectations. 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, April 7, 2010. We have no obligation to 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 will begin our discussion this morning with the review of our results for the second quarter and first half of fiscal 2010.

Then we will take a few minutes to discuss our plans and outlook for the rest of the 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 have finished our prepared remarks.

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

Kenneth T. Smith

Thanks, Kiley. This morning we reported diluted earnings per share of $0.81, a 35% increase over the second quarter of fiscal 2009. While revenue growth was in line with our original expectations a more favorable sales mix and improvement purchase mark-ups, combined with benefits from targeted cost improvement initiatives resulted in 195 basis points of operating margin expansion during the quarter.

As we reported several weeks ago, net sales for the quarter increased 4.9% and comp sales increased 3.6%. Customer traffic continued to be the primary driver of comp sales but average ticket also increased. While our consumable business continued to drive traffic, increasing 5% this year on top of a 15% increase last year, we also saw improved performance in more discretionary categories.

Both the home products category and the seasonal and electronics category increased nicely this year reflecting a strong focus on compelling price points, better in-store presentations, and improved marketing support.