Family Dollar Hit by Slowdown in Spending

Saying its customers were severely strapped for cash, Family Dollar Stores here last week said sales were lower than expected and net income fell by 4.1% during its fiscal second quarter, which ended Dec. 1. The results as well as a gloomy near-term forecast provided further indications that lower-income consumers are being hit exceptionally hard by the current economic slowdown. When

MATTHEWS, N.C. — Saying its customers were “severely strapped for cash,” Family Dollar Stores here last week said sales were lower than expected and net income fell by 4.1% during its fiscal second quarter, which ended Dec. 1.

The results — as well as a gloomy near-term forecast — provided further indications that lower-income consumers are being hit exceptionally hard by the current economic slowdown.

“When we first outlined our expectations for fiscal 2008 a few months ago, we suggested that the near-term environment for the low-income consumer would be challenging,” Howard R. Levine, Family Dollar's chairman and chief executive officer, said in a conference call last week. “But even our forecast didn't adequately anticipate the extent of the economic pressure on our customer.”

Levine said the chain's average customers were spending more than 70% of their income on housing, fuel and food, leaving little — particularly at the end of the month — for discretionary items.

Dollar stores are also facing a stronger opponent in Wal-Mart, which has been lowering its prices, analysts said.

Around 2,700 stores are scheduled to expand their food offerings this spring, Levine said. In addition, he said stores would reset their laundry and paper goods departments.

For the quarter, net income fell about 4%, to $51.9 million, vs. year-ago results. Sales of $1.6 billion showed an increase of 5.2%, but same-store sales fell by 1%.