Family Dollar Poised for Store Growth

Dollar-discount chain Family Dollar Stores might not have any major new store-opening plans in the works, at least that management is revealing, but the chain is certainly in a good position to expand. As some retailers close stores while others like Blockbuster flirt with outright failure, the Matthews, N.C.-based chain could see a lot of room for growth.

It couldn't come at a better time for the dollar-store operation, as recent sales are strong, bolstered by its increase in food items. Its main competitor, Dollar General, is pulling the trigger on expansion this year.

"We think we still have a number of opportunities to open new stores in this country," Howard Levine, Family Dollar's chairman and chief executive officer, said during the company's second-quarter conference call.

Family Dollar hasn't had a significant roll out plan for years. So far this year, the discounter has opened 122 units and closed 50, hardly significant numbers for a chain with about 6,600 stores across the country. Instead, management focused on revamping its merchandise to include more food items, specifically packaged goods. And it looks like it's paid off.

During its most recent quarter, sales at stores open at least a year rose 6.4 percent. Sales of consumable goods, by contrast, increased twice as fast as overall revenues, rising just over 13 percent. Family Dollar is mostly selling packaged snacks such as chips and candy, though more stores are adding perishable items such as bread and milk.

Food accounts for 20 percent of Family Dollar's total sales, and analysts have applauded Family Dollar's push in that direction. The move especially helps in this climate, as the company's management admits that spending on some discretionary items, like clothing and accessories, has fallen.

Dollar General, one of Family Dollar's main competitors, has had much of the same success with consumables over the last few years, which has also fueled its strong financial position. As a result, the 8,300-store chain now plans to add 450 new stores this year.

If strong sales trends fueled by food continue, we could also see some significant store expansion by Family Dollar in the near future. If management decides to go that route, they'll sure have some options in this environment.