MATTHEWS, N.C. — The government shutdown will likely rattle an already shaky consumer base for Family Dollar Stores, its chief executive officer said last week.
"The way I think about these kinds of things, it’s just not a help to consumer confidence," Howard Levine, Family Dollar’s chairman and CEO, said during a conference call reviewing the discounter’s fourth-quarter financial results last week. "The threat of a shutdown, the uncertainty regarding some of the government assistance that impacts our consumers [and] the uncertainty around job growth are very real to our consumers every day.
"Over half our customers are on some kind of government assistance out there, so when they hear and read about all this uncertainty, I think it impacts their confidence [and] their outlook."
Possible effects of the shutdown contributed to a gloomy outlook for first-quarter sales for Family Dollar, officials noted. The company expects comparable-store sales to decrease in the quarter and gain only slightly for the new fiscal year, which began Sept. 1.
That trend follows a disappointing fourth quarter in which comps were flat vs. an expectation of a low-single-digit increase. The company cited stressed consumers as well as sales-driving initiatives from last year’s fourth quarter, when Family Dollar expanded its consumables offerings including food, and adding cigarettes for the first time.
Consumables Sales
Those consumables continue to drive sales and traffic for the chain, officials noted.
"Some of what happened in the quarter was just cycling some of our best comps from the prior year," Michael Bloom, Family Dollar’s president and chief operating officer, said. "Our consumables strategy is working very well and we’re driving traffic and driving trips."
Expense controls and reduced inventories helped net income to increase by 26.3% to $102.2 million for the fourth quarter, while total sales increased 5.8% to $2.5 billion. For the fiscal year, Family Dollar reported net income of $440.4 million, a 2.6% increase, on $10.4 billion sales. Total sales increased by 11.4%.
"Fiscal 2013 was more challenging that we originally planned," Levine said. "We expect that many of the headwinds faced by our customers will persist: High unemployment levels, higher taxes and continued uncertainty in Washington will likely continue to pressure our customers’ income."
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Plans for the new fiscal year include continuing an aggressive store rollout and renovation schedule, Levine said, with 525 new stores and 850 renovations planned — about the same levels as fiscal 2013. However, the company plans to reduce capital spending to a range of $550 million to $600 million vs. spending of $744 million last year.
The reduced spending forecast reflects Family Dollar’s plans to use multiple financing approaches to building stores including a build-to-suit financing structure in addition to the company’s customary fee development program, Mary Winston, chief financial officer, said. "We’re expanding our toolkit of financing vehicles that we can use to fund our store base," she said.
Bloom said the company would also look to sharpen pricing with an eye on "making sure we are priced right in areas where the customer expects us to be right." He added that the company was reviewing its advertising strategy, with a goal of increasing effectiveness and making more use of media like digital, radio and in-store communications.
Read more: Family Dollar Opens 8,000th Store
Beginning in January, Family Dollar will roll out renovated checkout areas at its stores. Bloom said the new areas would drive high-margin impulse sales while increasing checkout speed.
The company also last week announced a partnership with Checkpoint Systems on a new shrink reduction technology that will apply electronic product tags at manufacturing or distribution facilities, rather than at stores. The rollout is set to begin in January
Bloom also detailed a "door-to-shelf" pallet delivery program whereby goods are delivered to stores on pallets that go directly to the sales floor. The program was tested at stores serviced by a North Carolina warehouse, and was shown to have a positive impact on sales, shrink, damages, worker compensation claims and turnover, Bloom said. The program will be rolled out to three other distribution centers this fiscal year.
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