Sales rose but profits fell at Family Dollar during its third quarter, the discount retailer reported Wednesday, reflecting both strong sales of low-margin products such as tobacco and frozen foods and more money spent on new stores.
Family Dollar's sales were up 9 percent from the third quarter last year, finishing at $2.57 billion. The Matthews-based retailer attributed the sales jump to high customer traffic and a boost in sales of consumables -- a broad category that includes food, health and beauty aids, and tobacco. Consumable sales rose 14.8 percent from a year ago.
Since the start of the downturn, Family Dollar has gradually added consumable items, such as milk and cheese, and most recently tobacco. Consumables accounted for more than 70 percent of the retailer's sales in the third quarter, Family Dollar reported.
Emphasizing those products helped Family Dollar capture high-earning customers trying to save a few bucks during the downturn, said Brian Youngblood, a consumer analyst for Edward Jones. And those customers are still visiting.
"They (Family Dollar) are still not seeing those customers making $70,000-plus go away," he said.
Despite a rise in third-quarter sales, Family Dollar's profit dropped by more than $4 million from the same time last year, sinking to $120.9 million. The retailer earned $1.05 per diluted share for the quarter, down from $1.06 last year.
Family Dollar said the weakened profits stemmed from strong sales of low-margin products compared to discretionary items that offer higher profit margins, such as apparel and accessories. Apparel and accessory sales were down 8.9 percent from a year ago.
"Our discretionary sales remained challenged as our costumers have been forced to make spending choices between basic needs and want," CEO Howard Levine said. "Consistent with market trends, we expect that our customers will continue to face financial headwinds
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