Family Dollar Stores Earnings Call Insights: Sales Outlook for Spring and Earnings Perspective
Sales Outlook for Spring
John Heinbockel – Guggenheim: So two things. March comps up 2%, do you guys not think – I know you say 2% to 4% is the range, but more like the lower end. Do you not think that sales will get better as the weather gets warmer and we do more spring business in April and May?
Howard R. Levine – Chairman and CEO: Sure John, good morning. That’s a question that we’ve discussed a lot frankly. One of the thoughts that we had was, in considering this is just how unpredictable and how uncertain things are. So just as an example, when I take a look back over the last several months, we came through the first quarter with 6.6% comp, finished with a strong November, had a great Thanksgiving sell-through, great Thanksgiving holiday. December was soft, whether that was to the fiscal cliff conversations or something else, we’re uncertain. We moved into January, we had high single-digit comps the first three weeks then the tax refund delay issue began to impact us for the next three weeks and February finished on a strong note. Now we are up against probably the best weather that we had the entire spring and summer selling season from last year and sales came in a little softer than we had anticipated. I’m (in the camp) with you, I do believe that if the season warms up and consumers are more in the mood to buy apparel that there is an opportunity to do that. We just thought it made some sense to be a little more cautious and take some of the risk out and I think it’s important to understand that and a great example of this is the March this year to last year. Our core customer buys when they need it. When it’s cold and wet they have no need for spring and summer selling merchandise. Conversely last year when we had probably the best weather we’ve had in many, many seasons, we had some great apparel sales. So it’s just a lot of uncertainty out there and you all also saw the jobs report last week that that gave another leg of uncertainty out there, what’s going to happen with that and all the other governmental discussions are going on out there from job growth to subsidies and entitlements, et cetera. So we just thought it made sense to reset, get a little more cautious and really look to try to do better than that what we have given in guidance and take a little longer term view in our approach.
John Heinbockel – Guggenheim: Then for Mike, you talked about repositioning home and apparel within the layout. Can you maybe walk through that a little bit more, where those areas are going in the layout? Are you also changing the composition of what you’re selling i.e., price points, fashion content, more (big specs) or no?
Michael K. Bloom – President and COO: Sure, John. As far as the layout goes, simply stated, we are moving apparel back to the front of the store and it’s going to go right in front of consumables. HBA will remain in the front of the store, apparel will be in the front of the store and then food will come right behind apparel. It’s a little tweak. So, that’s basically the layout changes. As far as the mix goes, John, we continue to work on the mix. We continue to tweak. As Howard mentioned, our customer buys on need and basic apparel is showing some stability, but we’ve learned a lot over the last year or so. We’ll continue to tweak whether it’s – you’re right, whether it’s colors or fashion or whether it’s more leggings or more camisoles, or whether it’s colors, yes, we continue do that. That’s what we do. So, yes, we have got a fairly new team down there. We mentioned that I think on the last call and are proud of the work they’ve done. I can tell you. I think we mentioned this in the last call as well. Howard and I have been intimately involved in this and real proud of sort of where they are going, the decisions they are making, the mix, the supplier relationships, so again, just looking for stability in that business…
Howard R. Levine – Chairman and CEO: John, if I could just add to that, in terms of price points, in assortment. One of the things that was a callout even through the holiday was, the customer was focused on lower price points and I would say that’s the same thing in the apparel categories. So, we are really focused on staying at that $10 (lower) price point in the apparel categories. The other big factor is she is really focused on great value. You have got to really give her the value to prompt her to make those purchases, more so than I’ve seen in a long time. So, it will continue to be major focuses for us to making sure that we provide that great value, lower price points and really trying to get her back over into that side of the store. As Mike said, a lot of good work has been made. Appreciate that the lead times on some of those categories are pretty long given that they come in from Asia and all over the world. But we feel good that we’re making some progress in the near-term, we are taking a more cautious view. You heard a substantial reduction in receipts, really focused on improving the productivity. So, we’re not forecasting big increases for the remainder of the year in those categories. We’re looking for better sell-throughs and just focusing on enhancing the productivity there.
Anthony Chukumba – BB&T Capital Markets: I had a question on the guidance. If you look at your performance for the first half of the year and you back out the extra week, your earnings were basically flat year-over-year. Then for this next quarter you are estimating they’re going to be flat to possibly down. But then when you look at your fourth quarter guidance you are essentially assuming a pretty significant year-over-year increase in earnings. So, I was just wondering — is there something with the calendar, something that you are anniversarying or just something else that gives you that confidence that, just from an earnings perspective your results will be much stronger in the fourth quarter than they’ve been prior year-to-date?
Mary A. Winston – EVP and CFO: I’ll take that. Just to talk a little bit about how we set our guidance and what we’re seeing in the back half of the year. All of your observations are correct. Year-to-date, we have been relatively flat from an EPS growth perspective. I think what you are seeing in our fourth quarter assumptions than our full back half assumptions is a continuation of what we’ve talked about already. So, the things that we expect to see in the back half of the year, continued strong consumable sales growth. Although we will be cycling or anniversarying some of those launches as we move into the fourth quarter. We expect to continue to see challenges in the discretionary business for all the reasons we’ve just talked about the pressure on our customer, the uncertainty in the macroeconomic environment and we’re managing the cost side. So from a margin standpoint, we’re managing all of the factors that flow into margin, we’re managing our receipts, which will help of course with our markdown performance and our inventory performance. Shrink is always a potential headwind, but we’re continuing to manage that. The biggest factor in the fourth quarter is the acceleration and the contribution we’re expecting from our margin enhancing initiatives. So as we’ve talked about on previous calls, we’re working on our global sourcing efforts, our private brand initiatives. All of those efforts, we expect to see ramping up as we go through the back half of the year. So they are having impact now. They’re going to have more impact in the third quarter than in the second quarter and yet more impact in the fourth quarter. So, we’re reflecting all of that in the guidance that we’ve given. The final thing I will comment on is our expense control. We’ve taken a hard look at our expenses. We’re managing expenses tightly and probably more impact of that is in the fourth quarter than in the other quarters. So all of that plays into what we expect in the back half.
A Closer Look: Family Dollar Stores Earnings Cheat Sheet>>