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1Q14 Earnings Conference Call
January 9, 2014
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A Word of Caution Certain statements contained in this presentation which are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address the Company’s plans, activities or events which the Company expects will or may occur in the future.
A number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements. Such factors, risks and uncertainties are set forth under the headings “Cautionary Statement Regarding Forward-Looking Statements,” or “Risk Factors” or "Management’s Discussion and Analysis of Financial Condition and Results of Operation" in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q filed or to be filed, respectively, and which are expressly incorporated herein by reference.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of January 9, 2014. The Company does not undertake to update or revise its forward-looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.
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Agenda
Introduction & Safe Harbor Kiley Rawlins, CFA VP – IR & Communications
Opening Remarks Howard Levine Chairman & CEO
Financial Review and Outlook Mary Winston Chief Financial Officer
Closing Remarks Howard Levine
Questions & Answers Howard Levine Mary Winston
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Opening Remarks
Howard Levine Chairman & CEO
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Key Investments
• Acceleration of new store openings
• Chain-wide renovation program
• Expansion of consumables categories
• Margin-driving initiatives
– Global sourcing
– Private brands
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Moving Forward
Accomplishments
– Expanded market share
– Customer satisfaction scores
– Reduced store manager turnover
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Priorities
– Stabilizing key businesses
– Re-energizing our focus on value
– Re-accelerating traffic
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Pressures Facing our Customers
• Elevated unemployment levels
• Higher taxes
• Reductions to key government assistance programs
– SNAP benefits
– Unemployment benefits
• Healthcare uncertainties
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Long Track Record of Success
• Focus on providing customers with great values
• Ability and willingness to adapt to near-term challenges while investing in the future
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FY14 Objectives
• Refine and enhance assortment
• Strengthen value proposition
• Re-accelerate traffic
• Reduce infrastructure costs
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Digesting Significant Changes
• 1,000 new Food and HBA SKUs
• Tobacco
• Significant fixture and layout changes
• More trips
• Greater share of wallet
• Margin pressure
• Store manager turnover
• Shrink
• Inventory productivity
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Moving Forward
• Refine and enhance assortment
– Food
– Household
• Investments to strengthen value proposition
• Re-accelerate traffic
– Emphasize EDLP
– Optimize marketing tools
• Reduce costs
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Investments to Support Growth
• Pallet delivery program
• Renovations
• New stores
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Management Changes
• Jason Reiser promoted to Chief Merchandising Officer – Joined Family Dollar in July 2013 as SVP, Merchandising
– Promoted in October 2013 to Lead Merchandising Officer
• President & COO Michael Bloom leaving Family Dollar
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Financial Review and Outlook
Mary Winston CFO
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1Q14 Highlights
• Results in-line with previously provided guidance
• Total net sales increase 3.2%
• Comparable store sales decrease 2.8% – Cycling strong consumables sales growth
– Customers face continued financial challenges
– Intense promotional environment
• Earnings per diluted share of $0.68 – Gross margin expansion
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First Quarter Revenues
$2.4
$2.5
Net Sales (billions)
1Q13 1Q14
6.6%
-2.8%
Comparable Store Sales Growth
1Q13 1Q14
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First Quarter Gross Profit
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Improvements
• Higher initial markups
• Lower freight costs
Headwinds
• Mix pressure
• Higher inventory shrinkage
• Higher markdowns
36.1% 36.0%
35.3%
34.1% 34.3%
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1Q10 1Q11 1Q12 1Q13 1Q14
(Gro
ss P
rofi
t ($
M)
Gross Margin Trends
GM$ GM Rate
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Sales Mix Trends
72.5% 74.2%
9.5% 9.0% 8.6% 7.8%
9.4% 9.1%
4Q12 4Q13
Category Sales Mix (% of Sales)
Consumables Home Products
Apparel & Accessories Seasonal & Electronics
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73.9% 74.9%
10.0% 9.6% 7.4% 6.9% 8.8% 8.6%
1Q13 1Q14
Category Sales Mix (% of Sales)
Consumables Home Products
Apparel & Accessories Seasonal & Electronics
+170 bps +100 bps
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First Quarter SG&A Expense
19
30.1%
29.9%
29.2%
28.9%
29.5%
$0
$100
$200
$300
$400
$500
$600
$700
$800
1Q10 1Q11 1Q12 1Q13 1Q14
SG&
A E
xpen
se (
$M
)
SG&A Trends
SG&A SG&A (% of Sales)
Leverage
• Advertising
• Insurance
• Incentive compensation
De-leverage
• Store occupancy
• Store labor
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First Quarter Earnings Results
(in millions except for per share amounts)
1Q13 1Q14 Change
Net Income $80.3 $78.0 -2.8%
Diluted Earnings per Share
$0.69 $0.68 -1.4%
Weighted average shares - diluted
116.2 115.1
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$154 $166
$183
$210 $205
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
1Q10 1Q11 1Q12 1Q13 1Q14
(th
ou
san
ds)
• Anniversary of FY12 consumables expansion
• Well-managed discretionary inventories
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Capital Expenditures
$39 $39
$131
$196
$113
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
1Q10 1Q11 1Q12 1Q13 1Q14
(mill
ion
s)
• New store openings ($43M)
• Renovation program ($31M)
• Corporate/ IT ($20M)
• Existing stores ($14M)
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Returning Capital to Shareholders
19 20 21 24 30 25
258
27 25
125
$0
$100
$200
$300
1Q10 1Q11 1Q12 1Q13 1Q14
(mill
ion
s)
Dividends Share Repurchases
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Outlook*
2Q14
Total Sales^ Low-single-digit growth
Comparable Store Sales Low-single-digit decline
Gross Margin Expansion
SG&A Expense De-leverage
Diluted Earnings per Share $0.85 - $0.95
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*As provided in earnings press release dated January 9, 2014 ^Excluding impact of the extra week in 2Q13
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Outlook* FY14
Total Sales^ Low-to-mid-single-digit growth
Comparable Store Sales Low-single-digit decline
Gross Margin Flat
SG&A Expense De-leverage
Tax Rate 36% - 36.5%
Diluted Earnings per Share $3.25 – $3.55
Capital expenditures $450M - $500M
Sale-leaseback transactions $200M - $250M
Share repurchases ~$250M
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*As provided in earnings press release dated January 9, 2014 ^Excluding impact of the extra week in FY13
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1Q14 Earnings Conference Call
January 9, 2014