MATTHEWS, N.C. — Family Dollar Stores here said Wednesday it plans a new store layout that will move home and apparel items to the front of the store, ahead of food items.
With groceries selling well, the company hopes the change will boost its higher-margin categories, Michael Bloom, president and chief operating officer, told analysts during a conference call to discuss financial results for the second quarter, which ended March 2.
“It’s a little tweak,” he explained. “We’re moving apparel back to the front of the store, right in front of consumables, while HBA will remain in the front.”
According to Howard R. Levine, chairman and chief executive officer, “The challenge we’re facing now is a discretionary issue. When you’re dealing with a customer that’s stressed already in facing other challenges, she buys what she needs. So there will be a renewed effort and focus to drive some of the discretionary categories."
Levine said Family Dollar took space away from apparel several years ago to make room for consumables. "We knew the pressures we were going to put on the business and particularly the mix, but we felt it was important to do that based on what the customer was telling us, and it’s really opened up even more opportunities for us in some markets as we play a slightly different role as a food retailer or fill-in food retailer, along with offering much more competitive pricing on the HBA side compared with some drug-store competitors."
For the second quarter, net income increased 2.7% to $140.1 million, while sales rose 17.7% to $2.9 billion — including $189 million from a 14th week in the quarter — and comparable-store sales climbed 2.9%. For the half net income was up 1.7% to $220.4 million, while sales increased 15.4% to $5.3 billion.
Read more: DeBoer Expands Family Dollar’s Food Offering
Sales in the quarter were strongest in the consumables category, particularly in refrigerated and frozen foods and tobacco, Mary A. Winston, executive vice president and chief financial officer, pointed out — a circumstance she attributed to the company’s supply agreement with McLane Co., Temple, Texas, “[which] is driving high sales, and when that is combined with the improved markup in our coolers, it’s resulting in incremental operating profit.”
Consumables sales rose in the second quarter to 69.5% of total sales, compared with 64.6% a year earlier — “a shift that resulted in additional pressure on gross margin, which declined 146 basis points during the quarter,” Winston said.
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