For the quarter ended Nov. 26, Family Dollar posted an 8.1% increase in its net income to $80.4 million, or 68 cents a share, compared with $74.3 million, or 58 cents, in the year-earlier period.
Total sales were up 7.6% to $2.15 billion from $1.97 billion a year ago. Comparable store sales rose 4% thanks to both higher traffic and consumer transaction value.
While the profit results were in line with analysts’ average estimate, the retailer missed their estimate for $2.17 billion in sales.
“The environment continues to be challenging for our customers, and our experienced team remains focused on executing our long-term strategy,” Howard Levine, ceo, said.
‘Stressed’ Consumers Buy More Consumables
Consequently, the retailer has seen a shift in what its consumers are buying—away from discretionary items and more into consumables. By second quarter, Family Dollar plans to add 300 new food items in all stores.
Levin told analysts in a conference call that over the last five years, consumables have increased from 61% to 70% of total sales. Hence some discretionary items will be scaled back, too.
“When you’re faced with, ‘What am I going to have for dinner vs. buying a new shirt, our customer pretty quickly figures out what’s important,” Levine said.
But analysts pointed out that lower margin consumable goods have their negative side, too. Gross margin fell to 35.3% from 36% a year ago. And inventory increased 14.3%.
For its second quarter, Levine said he expects a comparable store sales increase of about 5% with earnings between $1.10 and $1.18 a share. Analysts’ average expectation is for a profit of $1.14 a share.
He added that the company expects to renovate, move or expand about 1,000 of its more than 5,700 stores the end of the year.