Family Dollar FY 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

Macro Outlook/Customer Trends/Competitive Environment

“It’s tough out there right now for our customers, and their spending remains constrained. From our most recent Nielsen Homescan panel data, we know that our customers’ spend in the total market has declined over the past year. However, at Family Dollar, we continue to gain share of her wallet.”

“the economic backdrop remains very challenging for our customer. She’s stretching her budget and forced to make choices. She’s coming to us for her basic needs, and we’re gaining share in those businesses.”

“We continue to plan our discretionary categories conservatively. We are managing our receipts and optimizing space.”

“This year is proving to be more challenging than we had originally planned. While we continued to invest for the long term, we have adapted to the slower sales environment. Our team has repositioned the company by focusing on what we can control. We have taken a more aggressive stance on managing expenses. We are controlling and improving inventory productivity. We are stabilizing gross margin, and we are driving operational efficiencies.”

“we are seeing some stabilization in our discretionary business”

“whether it’s bedding or housewares, we’re seeing some really good stabilization in those businesses.”

“we see nothing new [in promotional activity]. There’s no new additional frequency in circulars. But the example is Walmart has been extremely promotional, several events during a week, midweek, weekend, but rational. So nothing new that has been new in the last several months. But it’s a heavy promotional environment out there, and — but rational is how I would characterize it.”

Operational Insights

“Addressing shrink is a good example of where we are looking to drive efficiency. We believe that there is a relationship between shrink, inventory levels and store manager turnover”

“Exclusive agreements in segments where there is low customer loyalty, like batteries, are good for our customers, our stores and our profitability…for example, last quarter, we signed an agreement with Procter & Gamble to make Duracell batteries our only national brand in all of our stores.”

“we looked back, it was over 1,000 SKUs that we’ve added. And we knew that once we added those SKUs that we would have some higher inventory levels than we typically would prefer and typically what we’ve shown historically…. The team has worked really hard on improving the assortment, culling out some of the SKUs that have not performed well, adding other SKUs that will replace those to continue to be more relevant to our customer. But at the end of the day, what we’re most pleased with is we are more relevant to our customers. We have a better and improved assortment and look to continue to grow and manage that.”

“the reality is at some point, your labor costs do become relatively fixed because at some point, you have to have people with basic level of labor to operate the stores. Occupancy also is a fixed cost. So when you consider those 2 large buckets of spending being relatively fixed, and that represents about 2/3 of our SG&A, it’s very hard to comp that or to lever that as our comps get pressured.”

[what they’re looking for in new executives] “It’s about understanding small-box retail. It’s about understanding, having an in-depth understanding of our consumer and how they’re evolving; our competition, how they’re evolving; our mix, how it’s evolving; our marketing collaboration between marketing and supply chain. And to me, it’s all about leadership, and I don’t know if it’s necessarily rocket science. But I think it’s those types of qualities that we are looking for. Someone’s got a deeper understanding of our business.”

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