MATTHEWS, NC—Among the most bullish classes of retailer at the moment and a favorite of net lease investors, dollar stores evidently aren’t insulated from the same headwinds that buffet the sector as a whole. Family Dollar Stores Inc. said Thursday it plans to close 370 underperforming locations, about 4% of its total store count, and is also easing up on new store openings.
“Our second quarter results did not meet our expectations,” says chairman and CEO Howard R. Levine. “The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer. In addition, like many retailers, our second-quarter results were significantly impacted by severe winter weather, which resulted in numerous store closings, disrupted merchandise deliveries and higher than expected utility and store maintenance expenses.”
For the quarter ended March 1, net sales were $2.7billion, off 6% as compared to $2.9 billion in Q2 of fiscal 2013. Earnings per diluted share in Q2 were $0.80 as compared to $1.21 in the same period a year ago, although Family Dollar attributes a difference of at least 12 cents per share to Q2 of fiscal ’13 being a week longer and the especially harsh winter weather of this year’s fiscal Q2.
“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,” Levine says. The company has implemented “an in-depth business review” to find ways of strengthening its value proposition and financial performance.
To that end, the company plans to cut prices on nearly 1,000 basic items. It has targeted 370 stores for closure in the second half of fiscal ’14, but has not yet identified which locations will go dark.
Fiscal 2015 will see between 350 and 400 new store openings, compared to the 525 new locations that will be rolled out in the current fiscal year—which themselves will be offset by 370 store closings. Family Dollar says the slowdown in expansion is intended to improve ROI “by capitalizing on insights regarding location, competitive dynamic and cost structure.” In the current quarter, the company is expecting same-store sales to decline in the low single-digit range.