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Family Dollar Stores Inc. said its profits for the third quarter rose 12.1 percent, as the Matthews-based retailer worked to bring in more customers by increasing its offerings of grocery items and other daily essentials.
The company earned $124.5 million in profits for the quarter that ended May 26, an increase over the $111.1 million in profits it earned for the same quarter last year.
Family Dollar in the third quarter started offering more kinds of food, health, beauty and personal care products, and introduced tobacco products.
Total sales increased 9.6 percent, to $2.36 billion. Sales were strongest in the categories of seasonal and electronics, and consumables.
Sales at Family Dollar stores that have been open for a year or more, considered a key measure of a retailer’s health, were up 5 percent. The company said this was due to more customer traffic at its stores and an increase in the average amount spent in each transaction. But analysts noted that this increase was at the low end of the company’s March forecast.
The retailer is expanding its food offerings by putting more brand-name goods, such as Velveeta and Gatorade products, on its shelves and increasing the size of the grocery coolers in some of its stores.
“Food drives trips, and trips drive sales,” Michael Bloom, the company’s chief operating officer, said during a conference call with analysts.
Family Dollar also said it is renovating many of its stores and has completed about 600 renovations so far this year.
“By the end of fiscal ’12, just under half of our stores will offer customers an improved, more competitive shopping experience,” said CEO Howard Levine.
These renovations, in part, propelled the company’s capital expenditures to $391.4 million for the first three quarters, compared with $230.3 million for the same period last year.
The company’s gross profit margin fell to 35.8 percent, down from 36.2 percent last year. The company said this decrease was due in part to stronger sales of consumables, which tend to have lower profit margins. Other contributing factors were higher markdowns on underperforming merchandise and increased inventory shrinkage, a term used for stolen and missing merchandise.
The company’s outlook for the fourth quarter predicts sales at stores open at least a year will increase 5 to 7 percent.
Family Dollar operates more than 7,200 stores and said it plans to open between 450 and 500 new stores total for fiscal 2012 and close between 60 and 80 stores.
So far this fiscal year, the company has opened 287 new stores and closed 43.
In November, the company expanded into California, where Bloom said he sees room for growth. The company will break ground on a new distribution center this summer in Utah to help support its growth in the West.
The company’s stock closed at $67.20 on Thursday, down $1.93.
