Q1 2014 Family Dollar Stores Earnings Conference Call Presentation

1Q14 Earnings Conference Call

January 9, 2014

A Word of Caution Certain statements contained in this presentation which are not historical facts 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.

A number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements. Such factors, risks and uncertainties are set forth under the headings “Cautionary Statement Regarding Forward-Looking Statements,” or “Risk Factors” or "Management’s Discussion and Analysis of Financial Condition and Results of Operation" in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q filed or to be filed, respectively, and which are expressly incorporated herein by reference.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of January 9, 2014. The Company does not undertake to update or revise its 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.

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Agenda

Introduction & Safe Harbor Kiley Rawlins, CFA VP – IR & Communications

Opening Remarks Howard Levine Chairman & CEO

Financial Review and Outlook Mary Winston Chief Financial Officer

Closing Remarks Howard Levine

Questions & Answers Howard Levine Mary Winston

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Opening Remarks

Howard Levine Chairman & CEO

Key Investments

• Acceleration of new store openings

• Chain-wide renovation program

• Expansion of consumables categories

• Margin-driving initiatives

– Global sourcing

– Private brands

5

Moving Forward

Accomplishments

– Expanded market share

– Customer satisfaction scores

– Reduced store manager turnover

6

Priorities

– Stabilizing key businesses

– Re-energizing our focus on value

– Re-accelerating traffic

Pressures Facing our Customers

• Elevated unemployment levels

• Higher taxes

• Reductions to key government assistance programs

– SNAP benefits

– Unemployment benefits

• Healthcare uncertainties

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Long Track Record of Success

• Focus on providing customers with great values

• Ability and willingness to adapt to near-term challenges while investing in the future

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FY14 Objectives

• Refine and enhance assortment

• Strengthen value proposition

• Re-accelerate traffic

• Reduce infrastructure costs

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Digesting Significant Changes

• 1,000 new Food and HBA SKUs

• Tobacco

• Significant fixture and layout changes

• More trips

• Greater share of wallet

• Margin pressure

• Store manager turnover

• Shrink

• Inventory productivity

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Moving Forward

• Refine and enhance assortment

– Food

– Household

• Investments to strengthen value proposition

• Re-accelerate traffic

– Emphasize EDLP

– Optimize marketing tools

• Reduce costs

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Investments to Support Growth

• Pallet delivery program

• Renovations

• New stores

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Management Changes

• Jason Reiser promoted to Chief Merchandising Officer – Joined Family Dollar in July 2013 as SVP, Merchandising

– Promoted in October 2013 to Lead Merchandising Officer

• President & COO Michael Bloom leaving Family Dollar

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Financial Review and Outlook

Mary Winston CFO

1Q14 Highlights

• Results in-line with previously provided guidance

• Total net sales increase 3.2%

• Comparable store sales decrease 2.8% – Cycling strong consumables sales growth

– Customers face continued financial challenges

– Intense promotional environment

• Earnings per diluted share of $0.68 – Gross margin expansion

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First Quarter Revenues

$2.4

$2.5

Net Sales (billions)

1Q13 1Q14

6.6%

-2.8%

Comparable Store Sales Growth

1Q13 1Q14

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First Quarter Gross Profit

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Improvements

• Higher initial markups

• Lower freight costs

Headwinds

• Mix pressure

• Higher inventory shrinkage

• Higher markdowns

36.1% 36.0%

35.3%

34.1% 34.3%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1Q10 1Q11 1Q12 1Q13 1Q14

(Gro

ss P

rofi

t ($

M)

Gross Margin Trends

GM$ GM Rate

Sales Mix Trends

72.5% 74.2%

9.5% 9.0% 8.6% 7.8%

9.4% 9.1%

4Q12 4Q13

Category Sales Mix (% of Sales)

Consumables Home Products

Apparel & Accessories Seasonal & Electronics

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73.9% 74.9%

10.0% 9.6% 7.4% 6.9% 8.8% 8.6%

1Q13 1Q14

Category Sales Mix (% of Sales)

Consumables Home Products

Apparel & Accessories Seasonal & Electronics

+170 bps +100 bps

First Quarter SG&A Expense

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30.1%

29.9%

29.2%

28.9%

29.5%

$0

$100

$200

$300

$400

$500

$600

$700

$800

1Q10 1Q11 1Q12 1Q13 1Q14

SG&

A E

xpen

se (

$M

)

SG&A Trends

SG&A SG&A (% of Sales)

Leverage

• Advertising

• Insurance

• Incentive compensation

De-leverage

• Store occupancy

• Store labor

First Quarter Earnings Results

(in millions except for per share amounts)

1Q13 1Q14 Change

Net Income $80.3 $78.0 -2.8%

Diluted Earnings per Share

$0.69 $0.68 -1.4%

Weighted average shares - diluted

116.2 115.1

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$154 $166

$183

$210 $205

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

1Q10 1Q11 1Q12 1Q13 1Q14

(th

ou

san

ds)

• Anniversary of FY12 consumables expansion

• Well-managed discretionary inventories

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Capital Expenditures

$39 $39

$131

$196

$113

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

1Q10 1Q11 1Q12 1Q13 1Q14

(mill

ion

s)

• New store openings ($43M)

• Renovation program ($31M)

• Corporate/ IT ($20M)

• Existing stores ($14M)

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Returning Capital to Shareholders

19 20 21 24 30 25

258

27 25

125

$0

$100

$200

$300

1Q10 1Q11 1Q12 1Q13 1Q14

(mill

ion

s)

Dividends Share Repurchases

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Outlook*

2Q14

Total Sales^ Low-single-digit growth

Comparable Store Sales Low-single-digit decline

Gross Margin Expansion

SG&A Expense De-leverage

Diluted Earnings per Share $0.85 - $0.95

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*As provided in earnings press release dated January 9, 2014 ^Excluding impact of the extra week in 2Q13

Outlook* FY14

Total Sales^ Low-to-mid-single-digit growth

Comparable Store Sales Low-single-digit decline

Gross Margin Flat

SG&A Expense De-leverage

Tax Rate 36% - 36.5%

Diluted Earnings per Share $3.25 – $3.55

Capital expenditures $450M - $500M

Sale-leaseback transactions $200M - $250M

Share repurchases ~$250M

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*As provided in earnings press release dated January 9, 2014 ^Excluding impact of the extra week in FY13

1Q14 Earnings Conference Call

January 9, 2014