Personal Investment

If I would have invested $1000 dollars on 9/01/10 when the stock price was $42.96 I would have gotten 23.28 share.  I f I sold them today at market close of $50.20 the stock value would have been $1,168.53. Given that it was left alon and not day traded.

What I learned about Family Dollar.

The biggest thing I learned about family dollar is how well the organization is operated and aggressive about growing.

• They are very proactive in keeping their stock price growing.
• At a pace of 400 stores a year they will be up to 10,000 store in 2-3 years.
• Merchandising efforts are fine tuned to the customers demands.
• The history of the company is very good.  Another American dream come true for the Levine family.

CEO - Howard Levine - following in his fathers foot steps

Levine is the son of Leon Levine the founder of Family Dollar.  Levine  join Family dollar after graduation from college in 1981. He worked in the merchandising department until 1988. From 1988 to 1992 he was President of a womens clothing store. 1992 to 1996 he operated a private investment firms.  He couldn't stay away from the family business though. In 1996 he rejoined the company as Vice President-General Merchandise Manager of Softlines (clothing and food). By August 1998 he was elected as CEO.

Check out his earnings for 2009

Salary $948,654.00
Bonus $0.00
Restricted stock awards $1,871,399.00
All other compensation $122,705.00
Option awards $ $1,111,239.00
Non-equity incentive plan compensation $1,894,615.00
Change in pension value and nonqualified deferred compensation earnings $0.00
Total Compensation $5,948,612.00

CEO Interviews

Levin seems to keep a relatiely low profile and is not centered around any scandals.

CEO Interview Family Dollar

Posted on Jan 07, 2009 in Jim Cramer Mad Money CEO Interviews - Leave a comment

Cramer talked with Family Dollar (FDO) chairman and CEO Howard Levine, to find out if the company’s recent success will continue. Shares of Family Dollar Stores surged 14% Wednesday after the company reported better-than-expected earnings. The company also raised its 2009 guidance, lowered its inventory levels and increased their gross margins. Levine said FDO is doing well with its food programs, which accept food stamps at many of its locations. He also said FDO plans to reap big rewards by accepting credit cards, which will position the firm for the trade-down customer. Levine mentioned the company plans to expand its private label program in 2009 by improving packaging and upgrading merchandise in the health product segment. Lastly, Levine said Family Dollar is taking steps to avoid theft by retaining management and reducing inventory. Cramer said Wall Street is underestimating Family Dollar. He told viewers to buy the stock and he expects many analysts will upgrade the name soon.

Another more recent Family Dollar CEO interview. Levin talks about teh inmportance of focusing on the customer and being adaptable.

Check out the youtube link:
http://www.youtube.com/watch?v=di1M99Y_3V4

Family Dollar Gears up for Thanksgiving, Black Friday and Christmas.

Since the beginning of the month most retailer store are adorned with harvest and Christmas themed merchandise.

What about this newer retail created holiday, Black Friday? There are so many company's ads that are leaked nowadays on websites.  Check out the savings!

www.blackfriday2010.com/

Family Dollar has updated their website with a dedicated Christmass page.

http://www.familydollar.com/Pages/christmas.aspx

Can over-expansion lead to cannibalization of same store sales.

I found an interesting article about FDO aggressive campaign of launching 300+ store a year.

http://www.reuters.com/article/idUSTRE68S1ZY20100929

My concern is where the stores will be in some larger metro area I see Family Dollar stores practically on top of each other.  Can two stroe less than a half mile away from each other really have enough customers to keep the sales dollar per square foot per store above the corporate goal of  $1.51?

External vendors are important part of the value chain.

If you take a close look at the business partner’s link at Family Dollar you will find the following statement:

“For 50 years, Family Dollar has provided our customer with value and convenience in easy to shop neighborhood locations. As we continue to grow and expand our vendors will play an increasingly important role.”

Family Dollar finds value by outsourcing its product sourcing and internal activities by using outside business partners.   Family Dollar uses Thomas Reuters to help do their tax accounting, audits, and share financial because they have less incentive to hide discrepancies or misrepresent facts like internal employees would.  The buying department relies on outside vendor to help them source goods because there are too many products to be experts in all areas or have the purchasing power of a well formed industry supplier. Many times you have National Brands next to private brands to add value to sales of private labels by comparison. By relying on competent external business partner to share the work load the internal people of the organization can use there time to focus on the internal operation and performance of the company as a whole.  

Merchandise Mix

What is the merchandise mix of a typical family dollar store?

The following table shows the percentage of net sales related to each product category over the last three fiscal years:

Product Category                2010            2009          2008     

Consumables                       65.1 %       64.4 %       61.0 %

Home Products                   13.2 %       13.4 %        14.4 %

Apparel and Accessories    10.7 %      11.2 %        13.1 %

Seasonal and Electronics    11.0 %      11.0 %       11.5 %  

 Net Sales (in billions)             $7.8           $7.4           $6.9     

E.V.P. Exercises Stock Option to Gross +100K

On November 3, 2010, Charles S.Gibson Jr. Executive Vice President of Family dollar filed an Securities and Exchange Commission form 4 to exercise a stock option for 6,402 at $47.18, the shares acquired at $29.41. This transaction grossed Gibson $113,763.54. Not a bad bonus!


http://corporate.familydollar.com/Pages/SEC-filings.aspx

Walmart Shows Signs of Decreasing Direct Import Business with Aisa. Will FDO follow trend?

I know this is not the latest news, but it is still relevant. Here is an interesting article from earlier this year about Wal-Mart signing a sourcing contract with giant trade agency Li & Fung. This is a little backwards of previous trend of going direct.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSDzLcEyoNas

So if Wal-Mart has backup its integration efforts will other retailers take note and follow suit? I imagine so. I think that Wal-mart has learned that they just cannot control every facet of business. You can have experts in every area of product. Thus you have new strategic alliances forming to maintain supply chain activities.

Family Dollar should take notice. Having such a strategic partnership with several agencies could give them several benefits.

1. They save their employees time on project and increase efficiency
2. They reduce the risks by having an intermediary
3. They have a stronger voice within various industries
4. They can bring better quality and styled goods to market
5. They increase external resources for product sourcing and development

Typically, larger retail companies have pushed for integration closer to the source of goods to save costs, but how close is too close. I think companies are finally realizing diminishing returns on direct sourcing because some outside firms really do add value to the import process.

An interesting article on Should Family Dollar and Dollar General Merge.

Credit Suisse

A PERFORMANCE AND VALUATION GAP between Family Dollar (Ticker: FDO) and Dollar General (DG) has emerged.

Current consensus earnings-per-share estimates imply a 19% cash-flow return on investment (CFROI) for Dollar General in 2009 (900 basis points above its 10-year average), versus a 9% CFROI for Family Dollar (in line with its 10-year average). In part due to this differential, Dollar General currently trades at a 20% premium price to earnings multiple to Family Dollar based on our 2009 calendar estimates.

We believe Family Dollar is well positioned to capitalize on several operating initiatives to narrow its performance gap with Dollar General. By the end of its current quarter, Family Dollar is set to complete its initiative to roll out food stamp and credit-card acceptance on a chain-wide basis and move its store-hour extension initiative from a test of 15% of stores to chain wide implementation. In addition, it will continue remodeling stores to allocate more space to consumables and improve adjacencies and sightlines.

Here's the rationale for a Dollar General/Family Dollar merger. If a performance gap between the two entities persists, we believe a merger of the two companies would make sense. Dollar General could implement its proven initiatives in Family Dollar stores such as shelf-height increases and category management changes, helping to boost Family Dollar's sales productivity to a level closer to its own.

We see no structural impediment to Family Dollar stores reaching Dollar General sales-productivity levels if the two dollar stores were to merge, given their virtually identical store size, merchandise offering, pricing strategies, target customers, and only 50% store overlap (defined as stores within five miles of each other). Closing underperforming stores that do closely overlap would allow a transfer of sales from closed stores to nearby locations.

We estimate a combined Dollar General and Family Dollar could generate EPS power of approximately $2.20 by 2012 (versus our current 2010 EPS estimate of $1.60 and 2011 EPS estimate of $1.80 for Dollar General) based on the following assumptions: Dollar General pays a 35% premium for Family Dollar; acquisition funded entirely through newly issued Dollar General shares; Dollar General closes 20% of overlapping Family Dollar stores and reduces 20% of store level selling, general and administrative expenses, improves existing Family Dollar sales productivity by 8%-9% in both 2011 and 2012, and reduces Family Dollar duplicate overhead (non-store level) expenses by 30% in 2010 and 15% in 2011.

-- Michael Exstein
-- Tom Roller
-- Christopher Su

Strategic Fits in Supply Chain Activities

Family dollar enjoys some economic advantages from the size of their business when it comes to suppliers. These economies of scales allow them to pick and choose who they want to get products from based on benefit packages. They can go direct to manufacturer to get private labels because of the volume of products they have. They can bypass domestic distribution supply chains and move straight to the source when the intermediaries add no tangible benefits. Why should they buy paper products for a brand name when they can use a private label and save 30% off cost and give the customer a lower price and free up income to maximize the customer’s utility. They can partner with the same guys that make brand name chemicals, food, or paper products and have private labels. At such a value level of retail the customers are there to save money. If the products are close substitutes and maximizing income is the goal of consumers these strategic relationships literally makes cents.

Family Dollar Announces $250 Million Accelerated Share Repurchase

MATTHEWS, N.C., Oct 06, 2010 (BUSINESS WIRE) –

Family Dollar Stores, Inc. (NYSE: FDO) announced today it entered into an accelerated share repurchase agreement with Wells Fargo Bank, N.A. under which the Company will repurchase shares of its common stock. The Company is repurchasing shares under the agreement as part of its previously announced $750 million share repurchase authorization.
Under the accelerated share repurchase agreement, the Company will pay an aggregate of $250 million to the bank on October 7, 2010, for a number of shares that will be determined based on average prices of the Company's common stock during a specified period. The Company is funding the repurchase with cash on hand.
As the repurchase of common stock is expected to be accretive to earnings per share, the Company is updating its earnings guidance. Earnings per diluted share, including the impact of this $250 million share buyback, are now expected to be in the range of $3.04 to $3.24 per diluted share for fiscal 2011.
The Company's outlook for fiscal 2011 is based on the following assumptions, which may or may not prove valid and does not reflect any additional stock repurchases or any incremental borrowings:
• An increase in net sales of between 8% and 10%;
• An increase in comparable store sales of between 5% and 7%;
• Approximately 300 new store openings and 80-100 store closings;
• An increase in the operating margin based on flat gross margin and lower SG&A expenses, all as a percentage of sales;
• An effective income tax rate of approximately 36.5%;
• Weighted average diluted shares of approximately 127 million; and
• Capital expenditures of between $300 million and $350 million.
For the first quarter of fiscal 2011, the Company expects that comparable store sales will increase between 5% and 7% and that earnings per diluted share will be between $0.56 and $0.61 per share.

Focused Low Cost Strategy

Family Dollar should be classified as having a Focused Low Cost Strategy because they have a focused product line contained in 7,000 square feet of retail space. They limited selection, but what they do offer is value driven by price. There store locations and merchandise reach out to its target customers demographics which are areas that have a high concentration of household annual income less that $30,000 which is below the 2008 US Census $52,000 per capita income. Their niche is serving lower income Americans and providing them with quality goods at low prices in a convenient location.

This is well stated in their mission and vision statement:

For Our Customers
A compelling place to shop. . .
by providing convenience and low prices

Our Vision:
To be the best small-format convenience and value retailer serving the needs of families in our neighborhoods

Vertical Integration and Outsourcing

Family Dollar shows more signs of backwards vertical integration by moving up the supply chain to do more direct imports. There was a time when all goods were bought through domestic wholesale companies who stocked goods and domestic manufacturers. As the global economy changes to oversea production there are more trading companies, buying agents and subcontractors that are helping to cut margin out of the supply chain to give there customers better value. Right now with the economic recession consumers are more likely to adopt private brands and off label brands to save money. These types of changes in consumer taste are likely to fuel Family Dollar to get closer to the source by outsourcing merchandising functions to 3rd parties. These 3rd parties don’t have the overhead of stocking distributors and can operate on lower margins and they add value to Family Dollar by not having to hire more people to do this job to realize savings. It also shifts product liability from Family Dollar to the 3rd parties.

Having there own warehouses and distribution centers is another way Family Dollar can show vertical integration to save money by not outsourcing these services. They have 9 DC’s in the following locations: Matthews, NC; West Memphis, AR; Front Royal, VA; Morehead, KY; Maquoketa, IA; Odessa, TX; Marianna, FL; and Rome, NY. I am sure these locations were picked from the geo-demographics that combine central locations in small communities with low overhead costs o serve their 6,800 locations.

Mirco-SWOT Analysis

Strengths

Family Dollar has continually increase sales and mange debt.

They have huge market share and visibility.

There sales have increased during the recession.

FDO is starting to become more profitable on per share basis


Weakness

The company performs better in a weaker economic environment.

The company has product shelves filled with substitute goods.

Opportunity

Grow more by adding more stores into new territories.

Slow economic recovery is foreseen.


Threats

Competition – Dollar General is aggressive and larger. They just expanded product line to carry beer.

The substitute good effect diminishes when income rises or economic uncertainty decreases then consumers will return to preferred brands.

Record Per Share dilluted earnings 26.6% increase

Family Dollar Reports Record Earnings Results
Fiscal 2010 Earnings Per Diluted Share Increased 26.6% to $2.62
Operating Profit Expands to 7.3% of Sales from 6.2% of Sales in Fiscal 2009
Company Announces Acceleration of New Store Openings and Aggressive Store Renovation Program
Company Announces Authorization to Purchase $750 Million of Common Stock
MATTHEWS, N.C., Sep 29, 2010 (BUSINESS WIRE) --

Family Dollar Stores, Inc. (NYSE: FDO) today reported that net income per diluted share for the year ended August 28, 2010 ("fiscal 2010"), increased 26.6% to $2.62 compared with $2.07 for the year ended August 29, 2009 ("fiscal 2009"). Net income for the year increased 23.0% to $358.1 million compared with net income of $291.3 million in fiscal 2009.


"Our efforts to broaden the appeal of our assortment, improve the in-store shopping experience, enhance our customer communications, and strengthen our employee teams, resulted in strong improvements across most key metrics," said Howard R. Levine, Chairman and Chief Executive Officer. "I am very proud of this performance, and I appreciate the hard work and dedication of all our 50,000 Family Dollar Team Members."


I imagine that there is a two fold story going on here to have such adramatic impact on income. One they are increaseing stores like a wild fire, so revenue is increasing. I also imagine they have have been cutting out the middle suppliers and increase direct sourcing activities to get better cost and better value added products on the shelf. 23% increase in earning is huge. They run a tight ship at FDO.

Sales up 6.1%

MATTHEWS, N.C., Sep 02, 2010 (BUSINESS WIRE) --
Family Dollar Stores, Inc. (NYSE:FDO) reported that net sales for the fourth quarter ended August 28, 2010, increased 8.0% to $1.957 billion from $1.811 billion in the fourth quarter ended August 29, 2009. Comparable store sales for the quarter increased 6.1%. Sales during the quarter were strongest in the Consumables category. The Company had 6,785 stores as of August 28, 2010, including 75 new stores opened in the fourth quarter.
"Customers continue to respond well to the values and convenience we offer," said Howard Levine, Chairman and CEO. "In fiscal 2010, we enhanced our assortment, worked to make our stores easier to shop, and expanded our operating hours to provide our customers with more convenience. These investments have delivered solid results and position us well for continued growth in fiscal 2011."

Family Dollars Mission Statement

Mission Statement:

“Family Dollar’s mission is to be a compelling place to work for our Associates, a compelling place to shop for our customers and a compelling place to invest for our shareholders. In pursuing this mission, the Company is committed to conduct its business in accordance with the highest standards of ethical behavior and sound principles of corporate governance.”

Taking a closer look at Family Dollars’ mission statement reveals their current focus as a corporation. First, they want their employees know that they care and want them to be challenged.  Second want customers to know they should expect positive shopping experience. Third they reinforce to shareholders that they provide a good environment for them to put their money. 

I am compelled to interpret this mission state as somewhat overly concise and lacking of a variety of power verbiage by over using compelling.  They could have used a challenging workplace for employees or rewarding place to invest for our shareholdings. For their customers they could give them an exciting place to shop. They are doing good financially and leading their retail segment in growth and sales; I feel they could have a stronger mission statement.  Any one else have thoughts to share?

Corporate Governance

Family Dollar’s mission is to be a compelling place to work for our Associates, a compelling place to shop for our customers and a compelling place to invest for our shareholders. In pursuing this mission, the Company is committed to conduct its business in accordance with the highest standards of ethical behavior and sound principles of corporate governance. This is why they need so many executives.

Senior Management:

Howard R. LevineChairman of the Board and Chief Executive Officer

Mr. Levine has been the Chairman of the Board since January 2003 and Chief Executive Officer of Family Dollar since August 1998. Mr. Levine was employed by the Company in various capacities in the Merchandising Department from 1981 to 1987, including employment as Senior Vice President – Merchandising and Advertising. From 1988 to 1992, Mr. Levine was President of Best Price Clothing Stores, Inc., a chain of ladies’ apparel stores. He rejoined the Company in April 1996, and was elected Vice President – General Merchandise Manager: Softlines in April 1996, Senior Vice President – Merchandising and Advertising in September 1996, President and Chief Operating Officer in April 1997, and Chief Executive Officer in August 1998. In addition, Mr. Levine serves as a member on the Equity Award Committee. He is the son of Mr. Leon Levine, the Founder of the Company who retired in January 2003.

The rest of senior management:

R. James KellyPresident, and Chief Operating Officer
Dorlisa K. FlurExecutive Vice President – Chief Merchandising Officer
Charles S. Gibson, Jr.Executive Vice President – Supply Chain
Barry SullivanExecutive Vice President – Store Operations
Kevin Boyanowski Senior Vice President - Global Sourcing
Bryan P. CauseySenior Vice President – Planning, Allocation, and Replenishment
Keith  M. GehlSenior Vice President - Real Estate and Facilities
Don HamblenSenior Vice President - Customer Marketing
Joshua  R. JewettSenior Vice President – IT and Procurement, Chief Information Officer
Thomas M. NashSenior Vice President - Real Estate Development
John J. ScanlonSenior Vice President – Merchandising
Kenneth T. SmithSenior Vice President – Chief Financial Officer
James C. Snyder, Jr.Senior Vice President, General Counsel & Secretary

C. Martin SowersSenior Vice President – Finance

Bryan VenbergSenior Vice President – Human Resources

In addition to the many senior executives, they are made up of a Board of directors and various committees

for auditing, nominating, and compensating.

Headline: 4th quarter sales approach $5 billion.

Before I go into more about the company profile.  I saw the Aug. 28, 2010  company release of the 4th quarter earnings of $1.97 billion dollar which resulted in an 8% gain.  Talk about a recession proof industry.  I will be curious to see if sales go down after the recession is over or if the their market presence and growth make up for it.

From Humble Beginings

                                    

Family Dollar first opened its doors in November 1959 in Charlotte North Carolina. It was started by a 21 year old entrepreneur Leon Levine to promote sales of merchandise $2 and under. His idea was simple; have a self service store with product categories sectioned in the store. On this platform his stores grew and today there are over 6,700 stores throughout the US from southeast coast to Arizona generating sales of over $5 billion.  In the last decade over 4,000 stores have been added to the corporation. This is an impressive feat.

Stores range in size from 7500, to 9,000 square feet. Most merchandise is under $10 retail. Stores are placed in free standing location or are in strip mall settings. Family Dollar’s headquarters are located in Matthews, North Carolina, just outside of Charlotte. The Company operates automated full-service distribution centers in Arkansas, Virginia, Oklahoma, Kentucky, Iowa, Texas, Florida, and New York. The Company has been a publicly held corporation since 1970 and its stock is listed on the New York Stock Exchange under the symbol FDO.