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MATTHEWS, N.C. — Family Dollar Stores Inc. said it will close hundreds of underperforming stores and trim its work force after profits fell sharply in its most recent quarter. The dollar store chain posted a 35% decline in fiscal second quarter earnings, to $91 million.
Family Dollar Stores Inc. said it will close hundreds of underperforming stores and trim its work force after profits fell sharply in its most recent quarter. The dollar store chain posted a 35% decline in fiscal second quarter earnings, to $91 million.
Company officials partially attributed the decline to harsh winter weather. An extra week in the quarter last year that wasn’t present this year contributed to the difference, officials said.
Sales for the quarter ended March 1 fell 6% to $2.7 billion. Sales at Family Dollar stores open for a year or more fell 3.8%. Among the few bright spots in the quarter were increased sales of frozen food and tobacco.
"Notwithstanding the macroeconomic pressure, competitive environment and severe weather, we are not satisfied with our results, and we hold ourselves accountable for improving our performance," said Howard Levine, Family Dollar’s chairman and chief executive officer. "To that end, we have initiated an in-depth business review to identify opportunities to strengthen our value proposition, increase operational efficiencies and improve financial performance."
Family Dollar plans to close 370 stores, about 5% of its 8,100 locations. Levine said the stores that will close are mostly older locations, with annual sales of about $650,000, or half of the company’s average.
To improve its return on investment, the company will slow the pace of new store openings beginning in fiscal 2015. The company will open 350 to 400 new stores next year, down from the 525 that are scheduled to open this year.
The cost cutting will deliver $40 million to $45 million in annual savings, the company said.
Analysts noted that Family Dollar has seen a shuffling of its management ranks in recent months, including the departure in January of president Mike Bloom, who left after the company posted disappointing financial results for the three months ended November 30. Profits and customer traffic fell in that quarter as the economy pressured Family Dollar’s core customers. The retailer has described its core customer as a female head of household earning less than $40,000 a year and typically living paycheck to paycheck.
Those customers are also targeted by the company’s two main competitors, Dollar General Corp. and Dollar Tree Inc. But Dollar General’s profits have tripled over the past five years, or about twice Family Dollar’s profit growth.
To lure back shoppers, Family Dollar is lowering prices on key items and altering its marketing strategy to move away from frequent circulars and newspaper inserts in favor of everyday-low prices.
Earlier this month the company unveiled plans to add more than 400 items to its grocery lineup and cut prices on some 1,000 items, including such food brands as Kraft, Hellman’s and Ragu.
"These new, low prices can be found in every department throughout the store — from food to home cleaning and laundry care, as well as housewares and apparel," the company said in a statement.
In the short term, Family Dollar officials are braced for more discouraging news. The company said it expects same-store sales to decline “in the low-single-digit range” in the current quarter.
For its fiscal fourth quarter, the company projects same-store sales will be flat or up slightly from a year earlier.
Family Dollar is the nation’s second-largest dollar store, behind Dollar General, and has 8,100 stores in 45 states and Washington, D.C.
