Sales and profits increased at Family Dollar in the discount retailer’s fourth quarter, the Matthews-based company said Wednesday, but executives cautioned that the federal government shutdown and economic uncertainty could hurt sales going forward.
Chief Executive Howard Levine praised the company’s results and predicted higher profits in the coming fiscal year. But he said in a conference call with investors that “the environment was more challenging than expected.”
The shutdown is forcing states to freeze or cut back on many benefits going forward, such as the Special Supplemental Nutrition Program for Women, Infants and Children, which provides food aid.
“Over half of our customers are on some sort of government assistance,” Levine said. “When they read and hear about this uncertainty, it impacts their outlook.”
He said June was the best month of the quarter, but sales slowed as the summer progressed.
Profits for Family Dollar’s fourth quarter increased 26.3 percent compared with the same quarter last year, to $102 million. Sales were up 5.8 percent, to $2.5 billion.
The higher profits were partly because of a $5 million favorable accounting adjustment this year, and the absence of an $11.5 million legal settlement during last year’s fourth quarter that ate into profits.
In one potentially disappointing sign for investors, sales at stores open for a year or more were flat in the fourth quarter. Such sales are considered a key measure of a retailer’s health and growth, because they exclude the impact of sales from newly opened or closed stores.
Family Dollar also said that the average amount of customers’ transactions was flat in the quarter, as was customer traffic at its stores.
Consumers turned to Family Dollar for more of their everyday staples, such as food and tobacco, during the fourth quarter. Sales in the consumable goods category were up 8.3 percent, driving most of the company’s sales growth. Sales of apparel and accessories, which have been a trouble spot for Family Dollar, fell 4.9 percent.
Tobacco sales have been strong, Family Dollar Chief Operating Officer Mike Bloom said. The company started selling tobacco products last year.
“Tobacco is right on our expectation,” he said. “We feel good about tobacco.”
Analyst Wayne Hood of BMO Capital Markets said in a note to investors that he was “disappointed” with the company’s sales growth and projections for a sluggish first quarter.
“We are most concerned about the sequential slowdown in consumables sales and the expectations for continued weakness in the first quarter,” Hood said.
Sales for the company’s full fiscal year were up 11.4 percent to $10.4 billion. An extra week in the fiscal 2013 calendar added about $189 million in sales, the company said. Profits increased 5 percent to just under $444 million.
But gross profit margins in 2013 fell to 34.2 percent of sales, down from 34.9 percent last year. The company said stronger sales of low-margin consumable goods and higher “inventory shrink” – an industry term for shoplifting and lost items – were mostly to blame.
Family Dollar opened 500 new stores in fiscal 2013, bringing its total store count to 7,916. The company plans to open 525 new stores in fiscal 2014.
Family Dollar’s stock fell more than 1 percent, closing at $68.71.
Portillo: 704-358-5041 On Twitter @ESPortillo
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