Family Dollar Sales Rise, Stock Falls

Family Dollar Stores posted third-quarter sales and earnings gains, but investors sent the stock tumbling about 8% after the company reduced its earnings guidance for the year.

MATTHEWS, N.C. — Family Dollar Stores [4] here Wednesday posted third-quarter sales and earnings gains, but investors sent the stock tumbling about 8% after the company reduced its earnings guidance for the year.

"The environment remains challenging for consumers, and projecting short-term financial performance within this context remains difficult," said Kenneth T. Smith, senior vice president and chief financial officer, who also noted the difficult comparisons with federal tax credits received in the year-ago fourth quarter.

The dollar chain is continuing to expand its selection of traffic-driving consumables and adding more national brands, however.

"We are also leveraging stronger quality-control processes and investing to raise the quality of our private label, and we are protecting our strong price image and increasing our promotional efforts," said Howard R. Levine, chairman and chief executive officer. "While these investments have slowed the expansion of gross margin, they provide a platform for further top-line growth and position us well to expand our market share and deliver even stronger financial results."

Levine made his comments during a conference call with investors to discuss financial results for the third quarter and 39 weeks that ended May 29.

For the quarter net income rose 19% o $104.4 million, while sales, as previously announced, increased 8.4% to $2 billion, and comparable store sales jumped 7%; for the year to date net income rose 22.9% to $284.2 million and sales climbed 5.7% to $5.6 billion.

Ticket size has been "pretty flattish," Levine said, but traffic has been increasing "with amazing consistency and high growth within the consumables area."

James Kelly, president and chief operating officer, said consumables rose 9% during the third quarter, compared with 13% growth in the year-ago quarter.