Family Dollar 4Q13 Earnings Call notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Lowering prices, cutting workforce, closing stores and slowing sqft growth

“First, we are investing significantly to lower prices to provide more compelling values for our customers. Second, we are optimizing our workforce to improve execution and better align resources. Third, we intend to close approximately 370 underperforming stores. And lastly, we plan to slow square footage growth beginning in fiscal 2015.”

Operating margins pressured, returns on capital weakening

“With regard to new store openings, we have decided to slow down new store growth beginning in fiscal 2015. New stores have always delivered the highest return on investment for Family Dollar, but as our operating margin has contracted and our capital investment has increased, our return on investment trends have been pressured. To improve these trends, we have reevaluated our site selection criteria and refined our real estate models to reflect the current sales environment and sales insights from store openings over the last three years.”

They’re still opening lots of stores

“We are on track to open approximately 525 new stores this year, but next year, we will reduce new store openings to 350 to 400 stores and focus on opening stores that will deliver us the highest ROIC.”

Sales down 6%

“Total sales decreased 6.1% to $2.7 billion and comparable store sales decreased 3.8%. As a reminder, we estimate the extra week last year contributed approximately $189 million in sales. Excluding the impact of the extra week, total sales in the quarter would have increased 0.4% compared to the second quarter of fiscal 2013”

Don’t think this is a reflection of saturation

it doesn’t necessarily suggest that we are worried at this point about saturation in the marketplace. We still think that we have plenty of opportunities out there to open new stores, but as we adjust our financial performance in the business and think hard about our capital allocation, we want to make sure that we are refocusing our store investment on those that are going to deliver the highest return.”

We are a chain of chains

“with 8,000 stores we are really a chain of chains and these stores across the country have different demand characteristics and different demographics and just completely different characteristics.”

Taking price to meet competition, not undercut

“frankly, we are not looking to undercut competition in this thing. In most cases, it is coming down to the competition, but clearly this is an ongoing process and there will be more opportunities for us to invest in price’

Real estate landscape has changed

“et me start off by saying the world has changed over the last several years. Existing shopping centers don’t offer us what we need and our assortment what we want to do with the store today. Often times, very regular, not a regular shapes not the right sizes, there is grocery competition that doesn’t want us in their shopping centers. And this has been ongoing for a number of years and it has actually been a real positive for us that developing our own sites with freestanding locations where we have plenty of parking, really emphasizing the convenience component of our business with easy in, easy out, it is critically important to us.”

Digital marketing very effective

“we have been doing digital, email blast, et cetera for a few years now and it just continues to grow. You would be surprised how highly our customer index is to smartphones today. Well over 50% and climbing every day. So it is a very effective and efficient way to reach customers to notify them of things. What we are talking about doing is just continuing to grow what has already been set up as part of our marketing effort.”