Family Dollar Reports Record Third Quarter Earnings

--Management increases earnings guidance

Family Dollar Stores, Inc. (NYSE: FDO | Quote | Chart | News | PowerRating) today reported that net income per diluted share for the third quarter of fiscal 2009 ended May 30, 2009, increased 34.8% to $0.62 per diluted share compared with $0.46 per diluted share in the third quarter of fiscal 2008 ended May 31, 2008. Net income for the third quarter of fiscal 2009 increased 35.5% to $87.7 million compared with net income of $64.7 million for the third quarter of fiscal 2008.

"In today's environment, Family Dollar's commitment to value has great appeal. Customers are shopping us more frequently and relying on us to meet more of their basic needs. As a result, we continue to gain market share," said Howard R. Levine, Chairman and Chief Executive Officer.

"For fifty years, our strategy of providing customers with value and convenience has enabled us to weather past recessionary cycles well. But, we also have experienced strong growth during recovery periods as customers have increased their discretionary spend," continued Levine. "While we can't predict when the current environment will improve, the investments we are making to be more relevant to our customers and to improve the in-store experience position us well to meet our customers' evolving needs."

As previously reported, net sales for the third quarter of fiscal 2009 were $1.843 billion, or 8.3% above sales of $1.702 billion for the third quarter of fiscal 2008. Sales in comparable stores increased 6.2%. The increase in comparable store sales was a result of increased customer traffic, as measured by the number of register transactions, and an increase in the value of the average customer transaction. Sales in the third quarter of fiscal 2009 were strongest in the Consumables category.

Gross profit, as a percentage of sales, was 36.2% in the third quarter of fiscal 2009 compared to 34.6% in the third quarter of fiscal 2008. The improvement in gross profit, as a percentage of sales, was a result of lower freight expense, lower inventory shrinkage and higher purchase mark-ups which more than offset stronger sales of lower-margin consumable merchandise.

Selling, general and administrative ("SG&A") expenses increased 8.3% to $528.2 million in the third quarter of fiscal 2009 compared to $487.8 million in the third quarter of fiscal 2008. As a percentage of sales, SG&A expenses were flat in the third quarter of fiscal 2009 compared with the third quarter of fiscal 2008. Most expenses, including occupancy and payroll costs, were leveraged during the quarter as a result of a strong comparable store sales increase and continued expense management. These improvements were offset by higher incentive compensation and higher insurance expense.

The Company's inventories at May 30, 2009, were $1.035 billion, or 3.0% more than inventories of $1.005 billion at May 31, 2008. Inventory per store increased 1.3%. Reflecting increased customer demand, inventory of consumable merchandise was higher, offsetting lower inventory in more discretionary categories.

During the third quarter of fiscal 2009, the Company repurchased approximately 1.2 million shares of its common stock for a total cost of $38.5 million. As of May 30, 2009, the Company had authorization to purchase up to an additional $94.6 million of its common stock.

Outlook

"While we continue to believe that the underlying sales trends remain strong, we expect that the sales increase for the quarter will be affected by the cycling of last year's stimulus checks," said Mr. Levine. "The quarter is off to a good start, with sales in comparable stores increasing an estimated 2% in June."

"At Family Dollar, we have consistently reinvested in our business to drive stronger shareholder returns. Reflecting this strategy, we are investing aggressively in a chain-wide store technology refresh which supports the acceptance of credit cards and food stamps. In addition, this quarter we are initiating efforts to re-align space in our stores to accommodate strong customer demand and improve the in-store shopping experience. These investments will add incremental expense pressure in the fourth quarter but will position us to drive sustainable growth beyond the current quarter," concluded Mr. Levine.

For the fourth quarter of fiscal 2009 ending August 29, 2009, the Company expects that net sales will increase between 4% and 6% and expects comparable store sales will increase 2% to 4%. Reflecting the anticipated impact from lower freight expense, lower inventory shrinkage and investments the Company is making to enhance the shopping experience, the Company expects that earnings per diluted share will be between $0.39 and $0.43 in the fourth quarter of fiscal 2009 as compared with $0.38 in the fourth quarter of fiscal 2008.

For the fiscal year ending August 29, 2009, the Company expects that earnings per diluted share will be between $2.03 and $2.07 in fiscal 2009 as compared with $1.66 in fiscal 2008.

Cautionary Statements

Certain statements contained in this press release are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address certain plans, activities or events which the Company expects will or may occur in the future and relate to, among other things, the state of the economy, the Company's investment plans, net sales, comparable store sales, cost of sales, SG&A expenses, and earnings per diluted share. Various risks, uncertainties and other factors could cause actual results to differ materially from those expressed in any forward-looking statement. Consequently, all of the forward-looking statements made by the Company in this and in other documents or statements are qualified by factors, risks and uncertainties, including, but not limited to those set forth under the headings titled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in the Company's most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission up to the date of this release.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company does not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

Third Quarter Earnings Conference Call Information

The Company plans to host a conference call with investors today, July 8, 2009, at 10:00 A.M. EDT to discuss the results. If you wish to participate, please call (800) 857-5160 for domestic US calls and (312) 470-7174 for international calls at least 10 minutes before the call is scheduled to begin. The passcode for the conference call is FAMILY DOLLAR.

There will also be a live webcast of the conference call that can be accessed at the following link:

http://www.familydollar.com/investors.aspx?p=irhome.

A replay of the webcast will be available at the same address noted above after 2:00 P.M. EDT, July 8, 2009.

About Family Dollar

Operating small store locations, Family Dollar is one of the fastest-growing discount retail chains in the United States. Family Dollar offers a core assortment of name-brand and quality consumable merchandise supplemented by fashion and seasonal merchandise at everyday low prices.

Beginning with one store in 1959 in Charlotte, North Carolina, the Company currently operates more than 6,600 stores in 44 states. Family Dollar Stores, Inc., a Fortune 500 company, is based in Matthews, North Carolina, just outside of Charlotte and is a publicly held company with common stock traded on the New York Stock Exchange under the symbol FDO. For more information, please visit www.familydollar.com.

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                               For the Third Quarter Ended
(in thousands, except per share amounts)       May 30, 2009       % of Net      May 31, 2008       % of Net
                                                                  Sales                            Sales
Net sales                                      $      1,843,089   100.0 %       $      1,702,197   100.0 %
Cost of sales                                         1,175,897   63.8  %              1,112,755   65.4  %
Gross profit                                          667,192     36.2  %              589,442     34.6  %
Selling, general and administrative expenses          528,158     28.7  %              487,835     28.7  %
Operating profit                                      139,034     7.5   %              101,607     5.9   %
Interest income                                       879         0.0   %              2,973       0.2   %
Interest expense                                      3,216       0.2   %              3,361       0.2   %
Income before income taxes                            136,697     7.3   %              101,219     5.9   %
Income taxes                                          48,976      2.7   %              36,546      2.1   %
Net income                                     $      87,721      4.6   %       $      64,673      3.8   %
Net income per common share - basic            $      0.63                      $      0.46
Weighted average shares - basic                       140,319                          139,696
Net income per common share - diluted          $      0.62                      $      0.46
Weighted average shares - diluted                     141,195                          139,920
Dividends declared per common share            $      0.135                     $      0.125

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                               For the Three Quarters Ended
(in thousands, except per share amounts)       May 30, 2009       % of Net     May 31, 2008       % of Net
                                                                  Sales                           Sales
Net sales                                      $      5,589,182   100.0 %      $      5,217,851   100.0 %
Cost of sales                                         3,636,233   65.1  %             3,453,301   66.2  %
Gross profit                                          1,952,949   34.9  %             1,764,550   33.8  %
Selling, general and administrative expenses          1,587,425   28.4  %             1,481,340   28.4  %
Operating profit                                      365,524     6.5   %             283,210     5.4   %
Interest income                                       6,042       0.1   %             8,402       0.2   %
Interest expense                                      9,778       0.2   %             11,327      0.2   %
Income before income taxes                            361,788     6.4   %             280,285     5.4   %
Income taxes                                          130,638     2.3   %             100,363     1.9   %
Net income                                     $      231,150     4.1   %      $      179,922     3.5   %
Net income per common share - basic            $      1.65                     $      1.28
Weighted average shares - basic                       140,044                         140,357
Net income per common share - diluted          $      1.64                     $      1.28
Weighted average shares - diluted                     140,629                         140,620
Dividends declared per common share            $      0.395                    $      0.365

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share and share amounts)                May 30, 2009          May 31, 2008
Assets
Current assets:
Cash and cash equivalents                                         $    296,058          $    84,428
Investment securities                                                  33,500                --
Merchandise inventories                                                1,035,259             1,004,973
Deferred income taxes                                                  95,627                87,015
Prepayments and other current assets                                   54,711                59,356
Total current assets                                                   1,515,155             1,235,772
Property and equipment, net                                            1,046,544             1,049,670
Investment securities                                                  171,000               233,899
Other assets                                                           24,616                26,091
Total assets                                                      $    2,757,315        $    2,545,432
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable                                                  $    462,631          $    520,620
Accrued liabilities                                                    517,719               473,292
Income taxes                                                           18,160                3,885
Total current liabilities                                              998,510               997,797
Long-term debt                                                         250,000               250,000
Deferred income taxes                                                  53,121                38,926
Income taxes                                                           30,974                42,587
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par; authorized and unissued 500,000 shares        --                    --
Common stock, $.10 par; authorized 600,000,000 shares                  14,535                14,412
Capital in excess of par                                               205,253               163,309
Retained earnings                                                      1,346,527             1,134,966
Accumulated other comprehensive loss                                   (10,433   )           (3,776    )
                                                                       1,555,882             1,308,911
Less: common stock held in treasury, at cost                           131,172               92,789
Total shareholders' equity                                             1,424,710             1,216,122
Total liabilities and shareholders' equity                        $    2,757,315        $    2,545,432

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                                                                      For the Three Quarters Ended
(in thousands)                                                        May 30, 2009         May 31, 2008
Cash flows from operating activities:
Net income                                                            $    231,150         $    179,922
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization                                              118,280              115,194
Deferred income taxes                                                      (3,236   )           (25,813    )
Stock-based compensation                                                   9,772                7,267
Loss on disposition of property and equipment, including impairment        9,535                4,112
Changes in operating assets and liabilities:
Merchandise inventories                                                    (2,574   )           60,925
Income tax refund receivable                                               7,007                44,394
Prepayments and other current assets                                       3,471                (6,651     )
Other assets                                                               (288     )           411
Accounts payable and accrued liabilities                                   (61,312  )           (94,091    )
Income taxes                                                               11,562               53,639
                                                                           323,367              339,309
Cash flows from investing activities:
Purchases of investment securities                                         --                   (1,071,570 )
Sales of investment securities                                             8,650                1,029,065
Capital expenditures                                                       (103,190 )           (108,859   )
Proceeds from dispositions of property and equipment                       714                  561
                                                                           (93,826  )           (150,803   )
Cash flows from financing activities:
Revolving credit facility borrowings                                       --                   736,300
Repayment of revolving credit facility borrowings                          --                   (736,300   )
Payment of debt issuance costs                                             (624     )           (304       )
Repurchases of common stock                                                (38,456  )           (97,674    )
Changes in cash overdrafts                                                 (27,256  )           (43,428    )
Proceeds from employee stock options                                       27,827               97
Excess tax benefits from stock-based compensation                          399                  --
Payment of dividends                                                       (53,875  )           (49,945    )
                                                                           (91,985  )           (191,254   )
Net increase (decrease) in cash and cash equivalents                       137,556              (2,748     )
Cash and cash equivalents at beginning of period                           158,502              87,176
Cash and cash equivalents at end of period                            $    296,058         $    84,428

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
Selected Additional Information
NET SALES BY CATEGORY:
                                      For the Third Quarter Ended
(in thousands)                        May 30, 2009          May 31, 2008          % Change
Consumables                           $    1,201,033        $    1,066,649        12.6 %
Home products                              237,384               229,528          3.4  %
Apparel and accessories                    219,193               230,784          -5.0 %
Seasonal and electronics                   185,479               175,236          5.8  %
TOTAL                                 $    1,843,089        $    1,702,197        8.3  %
                                      For the Three Quarters Ended
(in thousands)                        May 30, 2009          May 31, 2008          % Change
Consumables                           $    3,565,542        $    3,139,544        13.6 %
Home products                              771,577               774,518          -0.4 %
Apparel and accessories                    620,175               686,341          -9.6 %
Seasonal and electronics                   631,888               617,448          2.3  %
TOTAL                                 $    5,589,182        $    5,217,851        7.1  %
STORES IN OPERATION:
                                      For the Three Quarters Ended
                                      May 30, 2009          May 31, 2008
Beginning Store Count                      6,571                 6,430
New Store Openings                         148                   165
Store Closings                             (65       )           (50       )
Ending Store Count                         6,654                 6,545
Total Square Footage (000s)                56,527                55,575
Total Selling Square Footage (000s)        47,060                46,194

SOURCE: Family Dollar Stores, Inc.

Family Dollar Stores, Inc. 
Investor Contact: 
Kiley F. Rawlins, CFA, 704-849-7496 
krawlins@familydollar.com 
or 
Media Contact: 
Josh Braverman, 704-814-3447 
jbraverman@familydollar.com