Family Dollar Reports Record Earnings

Family Dollar Stores, Inc. (NYSE: FDO), today reported that net income per diluted share for the year ended August 29, 2009 (“fiscal 2009”), increased 24.7% to $2.07 compared with $1.66 for the year ended August 30, 2008 (“fiscal 2008”). Net income for the year increased 25.0% to $291.3 million compared with net income of $233.1 million for fiscal 2008.

“Despite the challenges resulting from a rapidly changing economic environment, our team has delivered a strong performance this year, driving improvements across most key metrics, including increased customer traffic, operating margin expansion, earnings-per-share growth, greater inventory productivity and higher employee retention,” said Howard R. Levine, Chairman and Chief Executive Officer.

“As I reflect on these results, I am especially proud of how quickly our team worked to position Family Dollar to serve an expanding customer base. Understanding the increased pressures facing consumers, we accelerated key investments to enhance the convenience and shopability of our stores,” continued Levine. “I am pleased with the progress we have made and believe that we are well-positioned to continue to meet our customers’ evolving needs as economic conditions stabilize and improve.”

Fiscal 2009 Results

As previously reported, sales for fiscal 2009 were $7.401 billion, or 6.0% above sales of $6.984 billion for fiscal 2008. Sales in comparable stores increased 4.0%. The increase in comparable store sales was the result of higher customer traffic, as measured by the number of register transactions, and an increase in the value of the average customer transaction. Sales in fiscal 2009 were strongest in the Consumables category. During fiscal 2009, the Company opened 180 new stores and closed 96 stores.

Gross profit, as a percentage of sales, was 34.8% in fiscal 2009 compared to 33.6% in fiscal 2008. The improvement in gross profit, as a percentage of sales, was a result of lower freight expense, lower inventory shrinkage, lower markdowns 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 28.7% in fiscal 2009 compared with 28.4% in fiscal 2008. Most expenses, including payroll and occupancy costs, were leveraged during the year as a result of a strong comparable store sales increase and continued expense management. These improvements were offset by higher incentive compensation expense and higher insurance expense.

Operating profit, as a percentage of sales, was 6.1% in fiscal 2009 compared with 5.2% in fiscal 2008. Higher gross profit, as a percentage of sales, more than offset higher SG&A expense, as a percentage of sales.

At the end of fiscal 2009, the Company had approximately $438.9 million in cash and cash equivalents compared with $158.5 million at the end of fiscal 2008. During fiscal 2009, the Company generated $529.9 million in operating cash flow compared with $515.7 million in fiscal 2008.

The Company’s inventories at the end of fiscal 2009 were $993.8 million, or 3.8% below inventories of $1,032.7 million at the end of fiscal 2008. Average inventory per store at the end of fiscal 2009 was approximately 5% lower than the average inventory per store at the end of the fiscal 2008.

Capital expenditures were $155.4 million in fiscal 2009 compared with $167.9 million in fiscal 2008. During fiscal 2009, the Company paid $72.7 million, or $0.53 per share, in dividends compared to $67.4 million, or $0.49 per share, in fiscal 2008. During fiscal 2009, the Company repurchased approximately 2.3 million shares of its common stock for a total cost of $71.1 million. The Company has authorization to purchase up to an additional $62.0 million of its common stock.

Fourth Quarter Results

“The fourth quarter was our most challenging quarter this year. Not only did we anniversary the effect of last year’s stimulus package, but we also re-merchandised the sales floor in approximately half our chain during the quarter,” said Levine. “I am pleased with how well our teams executed these changes, and customers are responding favorably to the improved store layout. While our ambitious pace did pressure SG&A expenses in the quarter, I believe that these investments support our continued efforts to expand our assortment of key traffic-driving consumables and improve the in-store shopping experience.”

As previously reported, net sales for the fourth quarter of fiscal 2009 were $1.811 billion, or 2.6% above sales of $1.766 billion for the fourth quarter of fiscal 2008. Sales in comparable stores increased 1.0%. The increase in comparable store sales was a result of an increase in customer traffic, as measured by the number of register transactions. Sales in the fourth quarter of fiscal 2009 were strongest in the Consumables category. During the fourth quarter of fiscal 2009, the Company opened 32 stores and closed 31 stores.

Gross profit, as a percentage of sales, was 34.5% in the fourth quarter of fiscal 2009 compared to 32.9% in the fourth 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.

SG&A expenses in the fourth quarter of fiscal 2009 increased 6.9% to $533.5 million compared to $499.2 million in the fourth quarter of fiscal 2008. As a percentage of sales, SG&A expenses were 29.5% in the fourth quarter of fiscal 2009 compared with 28.3% in the fourth quarter of fiscal 2008. The increase in SG&A, as a percentage of sales, was primarily a result of additional expenses related to the Company’s space realignment efforts and Store of the Future rollout and the effect of a 1.0% increase in comparable store sales.

In the fourth quarter of fiscal 2009, the Company’s effective tax rate was approximately 32.6% compared with 34.8% in the fourth quarter of fiscal 2008. The decrease in the tax rate was primarily the result of greater federal jobs tax credits.

Net income per diluted share in the fourth quarter of fiscal 2009 increased 13.2% to $0.43 compared with $0.38 per diluted share in the fourth quarter of fiscal 2008. Net income for the fourth quarter of fiscal 2009 increased 13.0% to $60.1 million, compared with $53.2 million for the fourth quarter of fiscal 2008.

Outlook

Commenting on the Company’s outlook for fiscal 2010, Levine said, “While predicting near-term economic conditions remains difficult, we believe that the current consumer focus on saving money will remain strong in 2010. Our strategy of providing value and convenience positions us well to deliver sustainable growth for our shareholders as the economy stabilizes and improves.”

For fiscal 2010, the Company expects net sales will increase 5% to 7% as compared with fiscal 2009. The Company expects comparable store sales will increase 3% to 5% and expects to open approximately 200 new stores. Capital expenditures for fiscal 2010 are expected to be between $160 million and $180 million and will include investments to support the Company’s key technology initiatives, new store openings and existing store improvements. Reflecting the anticipated impact from stronger consumable sales, an expanded private label program and investments the Company is making to enhance the shopping experience, the Company expects earnings per share will be between $2.15 and $2.35 in fiscal 2010.

The Company estimates that comparable store sales for the September period increased approximately 5%. For the first quarter, the Company expects that comparable store sales will increase 3% to 5%. The Company expects net sales for the quarter will increase 5% to 7% and that earnings per share will be between $0.45 and $0.50 compared with $0.42 in the first quarter of fiscal 2009.

Cautionary Statements

Certain statements contained in this press release are “forward-looking statements” that are subject 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 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.

Fourth Quarter Earnings Conference Call Information

The Company plans to host a conference call with investors today at 10:00 A.M. EDT to discuss these 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, October 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.

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
			For the Fourth Quarter Ended
(in thousands, except per share amounts)			August 29, 2009			% of Net Sales				August 30, 2008			% of Net Sales
Net sales			$	1,811,424		100.0	%			$	1,765,777		100.0	%
Cost of sales				1,186,168		65.5	%				1,184,525		67.1	%
Gross profit				625,256		34.5	%				581,252		32.9	%
Selling, general and administrative expenses				533,511		29.5	%				499,156		28.3	%
Operating profit				91,745		5.0	%				82,096		4.6	%
Interest income				553		0.0	%				2,640		0.1	%
Interest expense				3,161		0.2	%				3,259		0.2	%
Income before income taxes				89,137		4.8	%				81,477		4.5	%
Income taxes				29,021		1.6	%				28,326		1.6	%
Net income			$	60,116		3.2	%			$	53,151		2.9	%
Net income per common share - basic			$	0.43						$	0.38
Weighted average shares - basic				139,441							139,701
Net income per common share - diluted			$	0.43						$	0.38
Weighted average shares - diluted				140,199							140,114
Dividends declared per common share			$	0.135						$	0.125

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
			For the Year Ended
(in thousands, except per share amounts)			August 29, 2009			% of Net Sales				August 30, 2008			% of Net Sales
Net sales			$	7,400,606		100.0	%			$	6,983,628		100.0	%
Cost of sales				4,822,401		65.2	%				4,637,826		66.4	%
Gross profit				2,578,205		34.8	%				2,345,802		33.6	%
Selling, general and administrative expenses				2,120,936		28.7	%				1,980,496		28.4	%
Operating profit				457,269		6.1	%				365,306		5.2	%
Interest income				6,595		0.1	%				11,042		0.2	%
Interest expense				12,939		0.2	%				14,586		0.2	%
Income before income taxes				450,925		6.0	%				361,762		5.2	%
Income taxes				159,659		2.2	%				128,689		1.8	%
Net income			$	291,266		3.8	%			$	233,073		3.4	%
Net income per common share - basic			$	2.08						$	1.66
Weighted average shares - basic				139,894							140,193
Net income per common share - diluted			$	2.07						$	1.66
Weighted average shares - diluted				140,522							140,494
Dividends declared per common share			$	0.53						$	0.49

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except per share and share amounts)				August 29, 2009					August 30, 2008
Assets
Current assets:
	Cash and cash equivalents				$	438,890				$	158,502
	Investment securities					5,801					—
	Merchandise inventories					993,797					1,032,685
	Deferred income taxes					93,164					87,715
	Income tax refund receiveable					8,618					7,007
	Prepayments and other current assets					59,168					58,182
		Total current assets				1,599,438					1,344,091
Property and equipment, net						1,056,449					1,071,883
Investment securities						163,545					222,104
Other assets						23,290					23,704
Total assets					$	2,842,722				$	2,661,782
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable				$	528,104				$	570,699
	Accrued liabilities					529,927					496,820
	Income taxes					1,676					1,466
		Total current liabilities				1,059,707					1,068,985
Long-term debt						250,000					250,000
Deferred income taxes						55,261					50,998
Income taxes						37,694					37,716
Commitments and contingencies
Shareholders' equity:
	Preferred stock, $1 par; authorized and unissued 500,000 shares					—					—
	Common stock, $.10 par; authorized 600,000,000 shares
						14,549					14,413
	Capital in excess of par					210,349					166,669
	Retained earnings					1,387,905					1,170,652
	Accumulated other comprehensive loss					(8,960	)				(4,862	)
						1,603,843					1,346,872
	Less: common stock held in treasury, at cost					163,783					92,789
	Total shareholders' equity					1,440,060					1,254,083
Total liabilities and shareholders' equity					$	2,842,722				$	2,661,782

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
				For the Year Ended
(in thousands)				August 29, 2009				August 30, 2008
Cash flows from operating activities:
	Net income			$	291,266			$	233,073
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			159,808				149,598
		Deferred income taxes			4,426				6,878
		Stock-based compensation			11,538				10,073
		Loss on disposition of property and equipment, including impairment
					9,924				6,298
		Other gains and losses			1,228				—
		Changes in operating assets and liabilities:
			Merchandise inventories		38,888				33,213
			Income tax refund receivable		(1,611	)			37,387
			Prepayments and other current assets		(986	)			(5,477	)
			Other assets		1,038				2,798
			Accounts payable and accrued liabilities		16,494				15,814
			Income tax liabilities		(2,155	)			26,083
					529,858				515,738
Cash flows from investing activities:
	Purchases of investment securities				—				(1,071,570	)
	Sales of investment securities				44,943				1,039,115
	Capital expenditures				(155,401	)			(167,932	)
	Proceeds from dispositions of property and equipment				1,103				831
					(109,355	)			(199,556	)
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				(71,067	)			(97,674	)
	Changes in cash overdrafts				(27,256	)			(79,727	)
	Proceeds from exercise of employee stock options				31,525				257
	Excess tax benefits from stock-based compensation				45				—
	Payment of dividends				(72,738	)			(67,408	)
					(140,115	)			(244,856	)
Net increase (decrease) in cash and cash equivalents					280,388				71,326
Cash and cash equivalents at beginning of period					158,502				87,176
Cash and cash equivalents at end of period				$	438,890			$	158,502
Supplemental disclosure of cash flow information:
	Purchases of property and equipment awaiting processing for payment, included in accounts payable
				$	4,575			$	6,579
	Cash paid during the period for:
		Interest, net of amounts capitalized			12,192				14,340
		Income taxes, net of refunds			158,486				58,891

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
Selected Additional Information
NET SALES BY CATEGORY:
		For the Fourth Quarter Ended
(in thousands)		August 29, 2009					August 30, 2008				% Change
Consumables		$	1,199,293				$	1,124,139			6.7	%
Home products			216,973					227,592			-4.7	%
Apparel and accessories			211,146					228,813			-7.7	%
Seasonal and electronics			184,012					185,233			-0.7	%
TOTAL		$	1,811,424				$	1,765,777			2.6	%
		For the Year Ended
(in thousands)		August 29, 2009					August 30, 2008				% Change
Consumables		$	4,764,835				$	4,263,681			11.8	%
Home products			988,550					1,002,110			-1.4	%
Apparel and accessories			831,321					915,155			-9.2	%
Seasonal and electronics			815,900					802,682			1.6	%
TOTAL		$	7,400,606				$	6,983,628			6.0	%
STORES IN OPERATION:
		For the Year Ended
		August 29, 2009					August 30, 2008
Beginning Store Count			6,571					6,430
New Store Openings			180					205
Store Closings			(96	)				(64	)
Ending Store Count			6,655					6,571
Total Square Footage (000s)			56,589					55,730
Total Selling Square Footage (000s)			47,120					46,324