Family Dollar Private Label Sales Up 22 Percent YTD

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July 12, 2011

Private label sales over all increased 22 percent year to date, with consumable sales up even higher as the chain continue to aggressively roll out new store brands, the company told analysts during a third-quarter conference call.

Revenues of private label consumables increased about 27 percent during the same time period. However, gross profit as a percentage of sales decreased 36 basis points to 36.2 percent of sales, primarily the result of “stronger sales of lower-margin consumables, increased promotional markdowns and higher freight expense,” said CFO Kenneth Smith. “These pressures were partially offset by benefits from our continued investments and price management capabilities, private brands and global sourcing, as well as lower inventory shrinkage.”

Looking ahead to the fourth quarter, Smith said the retailer expects that consumable expansion, store renovations and improved promotional programs will continue to drive sales momentum with same-store sales forecasted between 5 and 7 percent “As we look to the fourth quarter, the inflationary environment continues to present challenges, and we expect that gross margin will continue to be pressured by an adverse mix shift and higher fuel costs,” he said. “We intend to mitigate some of this pressure through benefits from better price management, the expansion of private brands and our global sourcing efforts.”
This year, Family Dollar added 500 store brands SKUs across several private label lines including Family Gourmet, Kidgets and Family Chef.

“Importantly, our expansion of private brands is also enhancing our profitability, said CEO Howard. “Our continued efforts to build an integrated global supply chain are supporting our private brand objectives while also helping us mitigate rising costs.”

During the question and answer period, Levine indicated more private label lines are coming soon. “We still have additional names to roll out that you'll be seeing in the next few weeks in our health and beauty aid area,” he said. “I can't think of a better time to roll out this private brand strategy with customers struggling today. Today, we are able to give our customers a legitimate choice between a [national] brand and a private brand, and I think that is resonating extremely well with our customers.”

Levine noted that the company has made significant quality investments in its private label products, but indicated private label packaging is still a bit of a struggle and evolving.

“We've had a dramatic strategic shift in the way we have positioned private brands over the last few years. We've got a more centralized control effort there. We've brought in a number of resources to improve the quality…that's starting to resonate very nicely with our customer.

Net sales for the quarter increased 7.8 percent to $2.2 billion compared to $2 billion in the same quarter last year. Comparable store sales for the quarter increased 4.7 percent, driven by increased customer traffic and a higher average transaction per customers.

SBD Views: Kudos to Mary Rachide and her team at Family Dollar for delivering these dramatic increases in volume, dollars and profit. Add this to the list of examples that illustrate what can happen when top management support for store brands is reinforced by the development of a solid store brands team.-- John Failla for Store Brands Decisions

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