Family Dollar Stores Inc. (NYSE:FDO) will close 370 stores, slow new-store growth and take other strategic actions as its earnings continue to falter. The Charlotte, N.C.-based discount retailer said its net income fell 35% to $90.9 million, or 80 cents per diluted share, for the second fiscal quarter ended March 1.
In the same period last year, the company earned $140.1 million, or $1.21 per diluted share.
Family Dollar has more than 40 stores in the Phoenix area and 20 more in the Tucson area, but isn't specifying which stores in Arizona or elsewhere will close.
Family Dollar notes the latest quarter included 13 weeks, compared with 14 weeks a year earlier. It estimates net income a year ago would have totaled $132 million if the extra week were excluded.
Revenue in the latest quarter fell to $2.7 billion, down from $2.9 billion a year earlier. The company estimates the extra week in last year's second quarter contributed about $189 million in sales.
Sales at stores in operation for at least one year declined 3.8 percent. Family Dollar attributes that drop to fewer customer transactions. The impact of that decline was partially offset by an increase in the value of the average customer transaction.
Sales were strongest in the consumables category, driven by growth in refrigerated and frozen food as well as tobacco.
Family Dollar also says adverse winter weather accounted for a negative impact of at least 5 cents of earnings per diluted share. It cites numerous weather-related store closings, disrupted deliveries and higher-than-expected expenses for utilities and store maintenance.
“Notwithstanding the macro-economic pressure, competitive environment and severe weather, we are not satisfied with our results, and we hold ourselves accountable for improving our performance,” CEO Howard Levine said in a company news release. “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 intends to take what it describes as “immediate, strategic actions," Levine said.
That includes plans to close approximately 370 underperforming stores and reduce the company's work force.
Family Dollar operates about 8,100 stores in 46 states. It has about 34,000 employees.
Last week, the retailer announced it had cut 135 jobs at its headquarters — or roughly 6 percent of the corporate facility's 2,400-employee work force in Matthews.
At the time, the discount retailer said it was “taking decisive action to better position the (company) to succeed in an adverse operating environment.”
Family Dollar also plans to slow new-store growth beginning in fiscal 2015, with plans to open between 350 and 400 stores. That’s down from 525 stores this fiscal year.
The company says slowing new-store growth should improve its returns on investment by focusing on location, competitive dynamic and cost structure.
Family Dollar also will lower prices on roughly 1,000 basic items, Levine said.
“We are confident that these steps will position Family Dollar to deliver stronger returns for our shareholders,” he added.
Family Dollar reported capital expenditures of $219.7 million during the first half of its fiscal year. That’s down from $409.7 million for the same period a year earlier.
Supply chain, corporate and technology investments accounted for $50.5 million in costs.
In fiscal 2013, Family Dollar opened 244 stores, closed 22 and renovated, relocated or expanded 319.
For the third fiscal quarter, Family Dollar forecasts that comparable-store sales will decline in the low single-digit range.
It anticipates earnings per diluted share of 72 cents to 82 cents for the current quarter, including costs of approximately 13 cents per share related to restructuring charges.
For the year, Family Dollar expects its diluted earnings per share will be between $2.55 and $2.75. That includes about 50 cents per share in restructuring charges.
In the first half of fiscal 2014, Family Dollar repurchased 1.8 million shares of its common stock for a total of $125 million. The retailer had authorization to purchase up to an additional $245.8 million of its common stock as of March 1.
It paid $59.5 million in dividends to shareholders.