Family Dollar Reports First Quarter Earnings and December Sales Results

Family Dollar Stores, Inc. (NYSE: FDO), today reported that net income per diluted share for the first quarter of fiscal 2009 ended November 29, 2008, increased 13.5% to $0.42 compared with $0.37 for the first quarter of fiscal 2008 ended December 1, 2007. Net income for the quarter increased 14.1% to $59.3 million compared with net income of $51.9 million for the first quarter of fiscal 2008.

“As more families face financial challenges in this environment, they are relying on Family Dollar for more of their everyday needs,” said Howard R. Levine, Chairman and Chief Executive Officer. “As a result, we’re gaining market share and driving both increased customer traffic and transaction value. These results reflect our continued focus on providing value for our customers while also managing inventory risk and driving overall profitability.”

As previously reported, sales for the first quarter of fiscal 2009 were approximately $1.754 billion, or 4.2% above sales of approximately $1.683 billion for the first quarter of fiscal 2008. Comparable store sales increased 2.1%. The increase in comparable store sales was a result of an increase in the average customer transaction value and higher customer traffic, as measured by the number of register transactions. Sales in the first quarter of fiscal 2009 were strongest in the Consumables category, driven primarily by sales of food.

The gross profit margin, as a percentage of sales, was 35.0% in the first quarter of fiscal 2009 compared to 34.2% in the first quarter of fiscal 2008. The improvement in gross profit, as a percentage of sales, was a result of lower seasonal markdowns, 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, as a percentage of sales, were 29.8% in the first quarter of fiscal 2009 compared with 29.2% in the first quarter of fiscal 2008. The increase in SG&A expenses, as a percentage of sales, was primarily a result of higher insurance expense and higher occupancy costs. Most other expenses were leveraged during the quarter.

The Company’s inventories at November 29, 2008, were $1.09 billion, or 2.7% less than inventories of $1.12 billion at December 1, 2007. Excluding in-transit inventory, inventory per store at November 29, 2008, declined approximately 4.5% compared with inventory per store at December 1, 2007.

In the first quarter of fiscal 2009, capital expenditures were $28.2 million compared with $36.6 million in the first quarter of fiscal 2008. During the first quarter of fiscal 2009, the Company opened 65 new stores and closed 19 stores.

Holiday Season Update

“Despite the economic pressures, customers clearly appreciated the great values we offered this holiday season,” said Levine. “For the December reporting period, net sales increased approximately 8% and comparable store sales increased approximately 6%. Although consumables continued to be strong, our selective investments in key discretionary categories, particularly toys, made Christmas this year more affordable for many families. As a result, our inventories in discretionary categories at the end of the critical holiday selling season were well controlled.”

Outlook

For the fiscal year ending August 29, 2009, the Company expects net sales will increase 4% to 6% and expects comparable store sales will increase 2% to 4%. Anticipating continued strong sales of consumable merchandise, the Company expects earnings per share will be between $1.63 and $1.81 in fiscal 2009.

For the second quarter of fiscal 2009 ending February 28, 2009, the Company expects comparable store sales will increase 3% to 5%. The Company expects earnings per diluted share will be between $0.48 and $0.52.

Cautionary Statements

Certain statements contained in this report 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 the Company’s plans, activities or events which the Company expects will or may occur in the future. Various risks, uncertainties and other factors could cause actual results to differ materially from those expressed in any forward-looking statement. Such risks, uncertainties and other factors include, but are not limited to:

• general economic conditions that could impact consumer spending, including the impact of programs adopted by the federal government to stabilize and support the U.S. economy;
• economic conditions, including inflation and energy prices, that could affect our profitability;
• competitive factors that could limit our sales, growth or profitability;
• fluctuations in comparable store sales and the success of our new store opening program;
• failure of existing or new technology to provide anticipated benefits;
• unusual weather, natural disaster, pandemic outbreaks, political events, war or acts of terrorism;
• our ability to select, obtain and market merchandise attractive to our customers at prices that allow us to profitably sell such merchandise;
• operational difficulties;
• our ability to operate distribution facilities;
• changes in regulations;
• changes in legal, regulatory or accounting guidance that could adversely affect our financial performance;
• higher costs or failure to achieve targeted results associated with the implementation of new programs or initiatives;
• adverse impacts associated with legal proceedings;
• our ability to attract and retain employees; and
• risks associated with our investment of funds in auction rate securities.

Consequently, all of the forward-looking statements made by the Company in this and other documents or statements are qualified by these and other factors, risks and uncertainties, including those set forth under “Cautionary Statement Regarding Forward-Looking Statements” or “Risk Factors” in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed or to be filed. 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.

First Quarter Earnings Conference Call Information

The Company plans to host a conference call with investors today, January 7, 2009, at 10:00 A.M. ET 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. ET, January 7, 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.