Family Dollar 2013 Annual Report Download - page 32

Interest Expense
The change in interest expense in fiscal 2013, as compared to fiscal 2012, was not material.
Other Income
The change in other income in fiscal 2013, as compared to fiscal 2012, was not material.
Income Taxes
The effective tax rate was 35.8% for fiscal 2013 compared to 36.4% in fiscal 2012. The decrease in the
effective tax rate in fiscal 2013, as compared to fiscal 2012, was due primarily to a decrease in the reserve for
state taxes and an increase in the benefit of federal tax credits partially offset by an increase in the reserves for
uncertain tax positions.
Comparison of Fiscal 2012 to Fiscal 2011
Net Sales
Net sales increased 9.2% in fiscal 2012 compared to fiscal 2011. The net sales increase in fiscal 2012
reflects an increase in comparable store sales of 4.7%, with the balance of the increase due primarily to sales
from new stores opened as part of our store growth program. The 4.7% increase in comparable store sales in
fiscal 2012 resulted from increases in both customer traffic, as measured by the number of register transactions,
and the dollar value of the average customer transaction. During fiscal 2012, the customer count increased
approximately 2.7%, and the average customer transaction increased approximately 2.0% compared to fiscal
2011. Sales during fiscal 2012 were strongest in the Consumables category.
During fiscal 2012, we opened 475 stores and closed 56 stores for a net addition of 419 stores, compared
with the opening of 300 stores and closing of 62 stores for a net addition of 238 stores during fiscal 2011.
Cost of Sales
Cost of sales increased 10.1% in fiscal 2012 compared to fiscal 2011. The increase was due primarily to
additional sales volume. Cost of sales, as a percentage of net sales, was 65.1% in fiscal 2012 compared to 64.5%
in fiscal 2011. Cost of sales, as a percentage of net sales, was negatively impacted by the shift in sales mix to
lower-margin consumable merchandise, an increase in inventory shrinkage, and higher markdowns. These
pressures were partially offset by an increase in the markups on the sales of merchandise. The growth in sales of
lower-margin consumables (69.0% of net sales in fiscal 2012 compared with 66.5% of net sales in fiscal 2011)
continues to pressure gross profit as a percentage of net sales. Inventory shrinkage increased during fiscal 2012
as a result of increased activities in our stores, including renovations and significant merchandise expansions. We
continue to use markdowns in our stores to drive revenue growth during challenging macro-economic times as
well as to increase market share. We continue to focus on improving our purchase markups through the
continued development of our private brand assortment, the expansion of our Global Sourcing efforts, and
improved price management capabilities.
Selling, General and Administrative Expenses
SG&A expenses increased 7.3% in fiscal 2012 compared to fiscal 2011. The increase in these expenses was
due in part to additional sales volume and additional costs arising from the continued growth in the number of
stores in operation. SG&A expenses, as a percentage of net sales, were 27.7% in fiscal 2012 compared to 28.2%
in fiscal 2011. Most expenses in fiscal 2012 were leveraged as a result of a 4.7% increase in comparable store
sales and continued productivity improvements. In addition, SG&A expenses, as a percentage of net sales, were
leveraged as a result of a decrease in store payroll costs (approximately 0.3% of net sales) and a decrease in
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