After announcing declining sales and lower profits for the second quarter, discount retailer Family Dollar Stores Inc. said it plans to close 370 stores and slow the pace of new store growth. The retailer also said it plans to cut prices on many items in its stores in hopes of attracting more shoppers.
“Our second quarter results did not meet our expectations,” said Howard R. Levine, chairman and CEO, who cited higher than expected promotional costs and more financially constrained consumers during the 2013 holiday season along with severe winter weather for its disappointing results.
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The company said it initiated an in-depth business review to identify opportunities to increase operational efficiencies.
“While this business review is ongoing, we are taking immediate, strategic actions to improve our performance,” Levine said. “First, we have made a significant investment to lower prices on about 1,000 basic items. Second, we are reducing our cost structure through the optimization of our workforce. Third, we will close approximately 370 underperforming stores.”
The company did not release a list of stores it plans to close, but said they were generally older and had sales that were about half of the average annual sales amount per store of $650,000. The company expected most of the store closures to occur in the second half of its 2014 fiscal year.
Once complete, its workforce reduction efforts and store closures are expected to result in $40 million to $45 million of annualized operating improvements beginning in the third quarter of fiscal 2014.
As part of the review, the company also said it will be slowing new store growth beginning in fiscal 2015. It now plans to open 350 to 400 new stores in fiscal 2015, down from 525 originally.
“New stores have always delivered the highest return on investment for Family Dollar, but as our operating margin has contracted and our capital investment has increased, our return on investment trends have been pressured,” Levine said in the company’s earnings conference call. “To improve these trends, we have re-evaluated our site selection criteria and refined our real estate models to reflect the current sales environment and sales insights from store openings over the last three years.”
“We have substantial data on returns by location, competitive dynamics and cost structure and we will use this data to eliminate higher risk situations,” he added.
Family Dollar currently operates more than 8,100 stores across 46 states.
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