Family Dollar to shutter 370 stores, slowing growth in 2014

Discounter Family Dollar said today (April 10) it plans to close 5% of its store, reduce corporate headcount by 135 workers in attempt to shave $40 million to $45 million in annual cost savings.

These streamlining efforts come just days after Family Dollar said it was defending its turf with plans to add 400 new products to its stores and lower the prices on 1,000 basic items.

Family Dollar reported weaker earnings on Thursday for its second quarter ending March 1. Net sales were $2.7 billion, down 6.8% from $2.9 billion a year ago. Same-store sales fell 3.8% in quarter and the retailer forecast negative comparable sales for the next two quarters as it shifts into more lower margin consumables with less emphasis on higher margin apparel and hardware.

Earnings totaled 80 cents per share, compared to $1.21 in the same period of 2013. The company estimates adverse weather shaved about 5 cents per share off the recent earnings. There was also one less week in this year’s quarter.

“Our second quarter results did not meet our expectations,” said CEO Howard Levine, in a statement. “We are taking a number of important steps through our immediate strategic actions to improve our operational efficiency and deliver better financial returns.”

The closures effect about 370 stores from the 8,100 locations. The company will also slow its new store openings next year, opening 350 to 400 new stores instead of the 525 it plans to open this year.

Analysts said the retailer is trying to lure shoppers back with lower prices on its food items, which was its best performing category in the quarter. Consumable make up 71% of Family Dollar’s revenue.

Levine said the holiday shopping season was “more promotional,” meaning Family Dollar had to discount items more, and that its customers remain “more financially constrained.”

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Analyst Wayne Hood of BMO Capital Markets said Family Dollar’s strategy could improve the company’s prospects in the long run.

“In our view, slowing store growth, closing unproductive stores and better aligning its cost structure is the correct long-term strategic actions to improve margin and productivity,” Hood noted following Thursday’s announcement.

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