MATTHEWS, N.C., March 22 /PRNewswire-FirstCall/ -- Family Dollar Stores,
Inc. (NYSE: FDO), a discount store chain operating 5,606 stores in 44 states,
reported that sales for the second quarter ended February 26, 2005, were
approximately $1.587 billion, or 13.1% above sales of approximately
$1.403 billion for the second quarter ended February 28, 2004. Net income was
$80.1 million, or 0.4% below net income of $80.4 million for the second
quarter of the prior fiscal year, and net income per diluted share increased
to $.48 from $.46. The results reported in this press release reflect the
corrections in lease accounting practices discussed below. These corrections
reduced net income by approximately $0.7 million in the second quarter this
fiscal year and $1.0 million in the second quarter last fiscal year.
For the first half ended February 26, 2005, sales were approximately
$2.967 billion, or 12.0% above sales of approximately $2.648 billion for the
first half ended February 28, 2004. Net income for the first half of 2005 was
$134.5 million, or 6.5% below net income of $143.9 million for the first half
of 2004, and net income per diluted share decreased to $.80 from $.83. The
corrections in lease accounting practices reduced net income by approximately
$1.7 million in the first half of this fiscal year and $2.0 million in the
first half of last fiscal year.
The sales gains are attributable to increased sales in comparable stores
and to sales recorded in new stores opened in the Company's store expansion
program. Sales in comparable stores in the second quarter of 2005 increased
approximately 4.5% above the second quarter last fiscal year, including an
increase of approximately 5.8% in sales of hardlines and no change in sales of
softlines. The customer count, as measured by the number of register
transactions in comparable stores, increased approximately 0.7% and the
average transaction increased approximately 3.7% to $9.87. During the second
quarter of 2005, the Company opened 90 stores and closed 45 stores, compared
to the opening of 95 stores and the closing of 22 stores during the second
quarter last year.
Sales in comparable stores in the first half of 2005 increased
approximately 3.6% above the comparable period last year, including an
increase of approximately 5.2% in sales of hardlines and a decrease of
approximately 2.0% in sales of softlines. The customer count increased
approximately 0.5% and the average transaction increased approximately 3.0% to
$9.40. During the first half of 2005, the Company opened 188 stores and
closed 54 stores, compared to the opening of 196 stores and closing of 48
stores during the first half of last year. As previously announced, the
Company plans to open 500 to 560 stores and close 60 to 70 stores during the
fiscal year ending August 27, 2005.
The gross profit margin as a percent to sales decreased from 33.8% in the
second quarter last year to 32.8% in the second quarter this year. While the
Company is pleased with the 4.5% increase in sales in comparable stores in the
second quarter this year, sales of lower margin basic consumables continued to
be stronger than sales of higher margin discretionary goods. This ongoing
shift of the merchandise mix and increased freight costs negatively impacted
the gross profit margin. Increased shrinkage also contributed to the gross
profit margin decline. Shrinkage in the second quarter was less of an adverse
factor than in the first quarter as the Company's efforts to reduce shrinkage
are beginning to have a positive impact. Expenses as a percent to sales
increased from 24.8% in the second quarter last year to 24.9% in the second
quarter this year. This increase is attributable, in part, to the planned
expenses incurred in connection with the urban initiative and the start of the
installation in stores of coolers for the sale of perishable goods. Increases
in store rental costs also contributed to the deleveraging of expenses.
The Company's inventories at the end of the second quarter this year were
approximately 5% higher on a per store basis than at the end of the second
quarter last year, excluding merchandise in transit to the distribution
centers. The majority of this increase was in basic consumable merchandise.
Earlier receipts this year of spring merchandise also contributed to the
increase.
The Company also reported continued good progress on its fiscal 2005 key
initiatives. At the end of the second quarter of 2005, about 500 stores in
major urban markets had implemented the urban initiative. This initiative is
designed to improve the operating performance of urban stores, including
higher sales and lower shrinkage, through investments in people, process
changes and technology. As previously announced, the Company plans to have
implemented the urban initiative in more than 1,000 stores by the end of this
fiscal year.
In the second quarter, the Company also began the planned installation in
selected stores of coolers for the sale of perishable food. By the end of the
second quarter of 2005, coolers had been installed and stocked with perishable
food in approximately 200 stores. The Company plans to have coolers installed
in more than 500 stores by the end of this fiscal year. By offering
perishable food at highly competitive prices in convenient store locations,
the Company expects to increase the frequency of customer shopping trips and
the average transaction size.
The Company's current plan is for net income per diluted share of Common
Stock to be down slightly in the third quarter ending May 28, 2005, as a
result of ongoing investments in the initiatives and an expected decline in
gross profit margin. As returns on investments increase and gross profit
margin pressures mitigate, the current plan is for a fourth quarter increase
in net income such that net income per diluted share of Common Stock for the
2005 fiscal year would be between $1.49 and $1.52, compared to $1.50 in the
prior fiscal year. These numbers reflect a reduction of net income per
diluted share of $.03 in the 2004 fiscal year and a similar estimated impact
in the current fiscal year as a result of the changes in lease accounting
practices discussed below.
The Company also announced that in the second quarter of 2005 it had
purchased in the open market 578,800 shares of the Company's Common Stock at a
cost of $19.2 million. No shares were purchased in the first quarter ended
November 27, 2004. As previously reported, in the 2004 fiscal year the
Company purchased 5.6 million shares of Common Stock at a cost of
$176.7 million.
Lease Accounting Practices
As stated in our March 3, 2005 press release, the Company has performed a
review of its accounting practices surrounding leases and lease-related items.
After consulting with the Company's Audit Committee, the Company has corrected
its accounting for leases as described below. The cumulative impact of this
correction on prior financial statements is to decrease pre-tax income by
approximately $38.3 million. While the impact of correcting the previously
issued financial statements is not material with respect to any one year, the
cumulative effect of such change, if recorded in the current quarterly period,
would be material to that period. Accordingly, the Company will restate prior
fiscal years' financial statements to reflect the impact of these corrections
as described below.
The Company previously amortized leasehold improvements over their
estimated useful economic life of up to ten years. In some cases this period
extended into an option period for the lease. The Company will now amortize
leasehold improvements over the shorter of the term of the related lease
(generally five years) or the asset's useful economic life. Further, the
Company had recognized rent expense for leases beginning on the rent
commencement date. This had the effect of excluding the pre-opening period of
its stores from the calculation of the period over which it expensed rent.
The Company now recognizes straight-line rent expense (including any rent
adjustment during the lease term) over a period that includes the pre-opening
period. The restatement had no impact on historic or future cash flows or the
timing of lease payments.
The effect of the restatement described above is as follows:
Impact on Fiscal Year Ended
Aug. 26, Sept. 1, Aug. 31, Aug. 30, Aug. 28,
2000 2001 2002 2003 2004
Rent $1,941 $2,429 $2,914 $2,536 $3,426
Depreciation and
Amortization 1,766 2,725 3,637 4,045 4,127
3,707 5,154 6,551 6,581 7,553
Income Tax 1,361 1,892 2,404 2,415 2,772
Impact on Net Income $2,346 $3,262 $4,147 $4,166 $4,781
Net income per diluted
share prior to
restatement $1.00 $1.10 $1.25 $1.43 $1.53
Net income per diluted
share after restatement $0.98 $1.08 $1.22 $1.40 $1.50
Impact of restatement $0.02 $0.02 $0.03 $0.03 $0.03
The cumulative net of tax impact on periods prior to fiscal 2000 is
approximately $4.6 million.
The Company will amend the appropriate filings with the Securities and
Exchange Commission to include the restated financial statements. The
adjustments noted above are subject to change as the Company completes its
preparation of the restated financial statements.
Family Dollar will host a conference call today, Tuesday, March 22, 2005,
at 10:00 A.M. ET to discuss the financial results and the lease related
accounting adjustments. If you wish to listen, please call 800-988-9433 for
domestic USA calls and 210-234-0000 for international calls at least 10
minutes before the call is scheduled to begin. The passcode for the call is
"FAMILY DOLLAR." A replay of the call will be available from about 1:00 P.M.
ET, March 22, 2005, through March 29, 2005, by calling 888-667-5784 for
domestic USA calls and 402-220-6427 for international calls.
There also will be a live webcast of the conference call that can be
accessed at http://www.familydollar.com/investors.aspx?p=irhome or by clicking
on the webcast icon on the "Investors" page at http://www.familydollar.com .
A replay of the webcast will be available at the same address after 2:00 P.M.
ET, March 22, 2005.
Certain statements contained in this press release or in other press
releases, public filings, or other written or oral communications made by the
Company or our representatives, which are not historical facts are forward-
looking statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
address the Company's plans, activities or events which the Company expects
will or may occur in the future. These forward-looking statements may be
identified by the use of the words "plan," "estimate," "expect," "anticipate,"
"probably," "should," "project," "intend," "continue," and similar terms and
expressions. Various risks, uncertainties and other factors could cause
actual results to differ materially from those expressed in any forward-
looking statements. Such risks, uncertainties and other factors include, but
are not limited to, competitive factors and pricing pressures, changes in
economic conditions, the impact of acts of war or terrorism, changes in
consumer demand and product mix, unusual weather that may impact sales, the
impact of inflation, merchandise supply and pricing constraints, success of
merchandising and marketing programs, general transportation or distribution
delays or interruptions, dependence on imports, changes in currency exchange
rates, trade restrictions, tariffs, quotas, and freight rates, availability of
real estate, costs and delays associated with building, opening and operating
new distribution facilities and stores, costs, potential problems and
achievement of results associated with the implementation of new programs,
systems and technology, including supply chain systems, store technology,
cooler installations and urban initiative programs, changes in food and energy
prices and their impact on consumer spending and the Company's costs, adverse
impacts associated with legal proceedings and claims, changes in shrinkage,
changes in health care and other insurance costs, changes in the Company's
ability to attract and retain employees, changes in state or federal
legislation or regulations, including the effects of legislation and
regulations on wage levels and entitlement programs. Consequently, all of the
forward-looking statements made by the Company in this and other documents or
statements are qualified by these and other factors, risks and uncertainties.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this release. The Company does
not undertake to publicly update or revise its 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.
Comparable operating results (unaudited) are as follows:
(In thousands, except per share amounts)
For the Second Quarter Ended
February 26, 2005 February 28, 2004
Net Sales $1,586,754 $1,402,798
Cost of Sales 1,065,835 928,984
Gross Margin 520,919 473,814
Selling, General and
Administrative Expenses 394,422 347,154
Income Before Income Taxes 126,497 126,660
Income Taxes 46,424 46,228
Net Income 80,073 80,432
Net Income Per Common Share-Basic $.48 $.47
Average Shares-Basic 167,723 172,061
Net Income Per Common Share-Diluted $.48 $.46
Average Shares-Diluted 168,361 173,003
Dividends Declared Per Common Share $.09-1/2 $.08-1/2
For the First Half Ended
February 26, 2005 February 28, 2004
Net Sales $2,966,999 $2,647,481
Cost of Sales 1,985,728 1,742,342
Gross Margin 981,271 905,139
Selling, General and Administrative
Expenses 769,609 678,583
Income Before Income Taxes 211,662 226,556
Income Taxes 77,160 82,687
Net Income 134,502 143,869
Net Income Per Common Share-Basic $.80 $.84
Average Shares-Basic 167,671 172,207
Net Income Per Common Share-Diluted $.80 $.83
Average Shares-Diluted 168,241 173,319
Dividends Declared Per Common Share $.18 $.16
Consolidated Condensed Balance Sheets (unaudited)
(In thousands, except share amounts)
February 26, February 28, August 28,
2005 2004 2004
ASSETS
Current assets:
Cash and cash
equivalents $ 79,895 $ 95,473 $ 87,023
Short-term investments 203,255 317,505 120,840
Merchandise inventories 954,018 823,160 980,124
Deferred income taxes 89,793 74,093 84,084
Income Tax Refund
Receivable - - 1,304
Prepayments and other
current assets 49,417 34,868 16,937
Total current assets $1,376,378 $1,345,099 $1,290,312
Property and
equipment, net 957,289 823,031 918,449
Other assets 17,260 19,019 15,600
$2,350,927 $2,187,149 $2,224,361
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
and accrued
liabilities $ 807,115 $ 700,182 $ 800,585
Income taxes
payable 17,028 16,406 -
Total current
liabilities 824,143 716,588 800,585
Deferred income taxes $ 90,103 $ 81,364 $ 86,694
Commitments and
contingencies
Shareholders' equity:
Preferred stock,
$1 par; authorized
and unissued
500,000 shares
Common stock,
$.10 par; authorized
600,000,000 shares $ 18,828 $ 18,743 $ 18,767
Capital in excess
of par 121,198 101,261 106,853
Retained earnings 1,603,228 1,413,398 1,498,890
1,743,254 1,533,402 1,624,510
Less common stock
held in treasury,
at cost 306,573 144,205 287,428
1,436,681 1,389,197 1,337,082
$2,350,927 $2,187,149 $2,224,361
Investments in auction rate securities and variable rate demand notes have
been reclassified from "Cash and cash equivalents" to "Short-term
investments." Also, outstanding checks were reclassified from "Cash and cash
equivalents" to "Accounts payable and accrued liabilities."
http://www.familydollar.com
SOURCE Family Dollar Stores, Inc.
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Company News On-Call:
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CONTACT:
George R. Mahoney, Jr., Executive Vice
President of Family Dollar Stores, Inc., +1-704-814-3252
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