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Family Dollar Cites Q3 Margin Pressures

MATTHEWS, N.C. — Family Dollar Stores here said third-quarter sales and gross margins were weaker than expected, although expense controls offset some pressures on profitability.

For the quarter, which ended May 28, net income was up 6.5%, to $111.1 million. Sales rose 7.8%, to $2.15 billion. Comparable-store sales were up 4.7%, driven by both increased traffic and a higher average ticket.

Sales of consumables, which carry a lower profit margin than other categories, rose 10.6%, pressuring gross margins, the company said.

"Softer-than-expected sales, particularly in seasonally sensitive categories and greater-than-expected gross margin pressure resulted in earnings per share that was a penny below our original guidance," said Kenneth T. Smith, senior vice president ands chief financial officer. "Despite these pressures, I would note that strong expense control resulted in modest operating margin expansion for the quarter."

The company said it continued to aggressively roll out private brands, with sales of those products up 22% year-to-date. Sales of private-brand consumables have increased about 27%.