Can Walmart small format close competitive gap?

Family Dollar – like Dollar General – is opening stores as fast as it can and this week said it would add 500 new units ahead of what is expected to be an announcement by Walmart next week to accelerate growth of its own small format.

Walmart holds its annual fall meeting for financial analysts next week and will lay out capital expenditure plans for its fiscal year beginning in 2013. The company has telegraphed an accelerated expansion of medium size Neighborhood Market and smaller format Express stores for several quarters by touting the improved financial performance relative to supercenters. Next week will bring news of whether the company is willing to embark on a pace of expansion approaching dollar store-esque proportions.

Any announcement of more rapid growth would come as Dollar General and Family Dollar are now annually adding in excess of 1,000 new stores combined. Dollar General which already has more than 10,000 locations is on track to open more than 600 units this year and next. Family Dollar recently issued a growth forecast for its new fiscal year that envisions adding 500 units to its base of 7,442 stores.

Family Dollar’s growth plan was announced in conjunction with the release of record sales and profits on Wednesday morning. Sales for the company’s fourth quarter ended August 25, increased 10.8% to $2.36 billion and same store sales increased 5.4%. Profits per share increased 4.5% to 69 cents and included a six cent per share charge related to a preliminary settlement of a legal matter involving the state of New York. Excluding the litigation charge, earnings per share would have increased 13.6% to 75 cents. For the year, sales increased 9.2% to $9.33 billion and net income per share increased 14.7% to $3.58, or 16.7% to $3.64 if the litigation charge is excluded.

"Fiscal 2012 was a year of great progress for Family Dollar," said company chairman and CEO Howard Levine. "We expanded our merchandise assortment to increase our relevancy to our customers, we continued to improve the shoppability of our stores and we repositioned our leadership team to better support our growth."

Among the accomplishments the company highlighted were the opening of 475 new stores, including 41 stores in California, and the renovation, relocation and expansion of 854 stores. The company expanded assortments in key consumable categories of food and health and beauty aids and introduced new categories such as tobacco, magazines and gift cards. To support its growth, Family Dollar opened its 10th distribution center and began construction of an 11th facility.

"These accomplishments position us well for continued growth in fiscal 2013 and beyond," Levine said. "Our financial goals over the next three to five years are to consistently deliver five to seven percent net new store growth, mid-single-digit comp sales growth, operating margin expansion and double-digit earnings per share growth."

Within a few years, Family Dollar and Dollar General combined will operate in excess of 20,000 units based on current growth rates.