** **

**Form 10-Q**

** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**(MarkOne)**

 

| **ý**                                      | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                            |                                                                                           |
| **For the quarterly period ended May 29, 2004** |
|                                            |                                                                                           |
| **OR**                                          |
|                                            |                                                                                           |
| **o**                                           | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                            |                                                                                           |
| **Commission File Number  1-6807**    |

 

**FAMILY DOLLAR STORES, INC.**

(Exact name of registrant as specified in its charter)

 
| **DELAWARE**                                                                              |   | **56-0942963**                        |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  Incorporation or organization)                           |   | (I.R.S. Employer  Identification No.) |
|                                                                                      |   |                                  |
| **P.O. Box 1017, 10401 Monroe Road****Charlotte, North Carolina**                         |   | **28201-1017**                        |
| (Address of principal executive offices)                                                  |   | (Zip Code)                            |
|                                                                                      |   |                                  |
| Registrant’s telephone number, including area code   **704-847-6961** |

 

**Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.**

Yes  ýNo  o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12-b of the ExchangeAct). Yes  ýNo  o

 

**Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.**

** **
| **Class**                    |   | **Outstanding  at June 28, 2004** |
|------------------------------|--------|-----------------------------------|
| Common Stock, $.10 par value |   | 168,280,778 shares                |

 

 

----

 

## **FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES**

 

INDEX

 
| Part I –  Financial Information                                                                                            |                                                                                                        |
|---------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                                                                                                            |                                                                                                        |
| Item 1  –  Consolidated Condensed Financial  Statements:                                               |                                                                                                        |
|                                                                                                                            |                                                                                                        |   |
|                                                                                                                            | Consolidated Condensed Balance Sheets –  May 29, 2004 and August 30, 2003                              |   |
|                                                                                                                            |                                                                                                        |   |
|                                                                                                                            | Consolidated Condensed Statements of Income  –  Quarter Ended May 29, 2004 and May 31, 2003            |   |
|                                                                                                                            |                                                                                                        |   |
|                                                                                                                            | Consolidated Condensed Statements of Income  –  Three Quarters Ended May 29, 2004 and May 31, 2003     |   |
|                                                                                                                            |                                                                                                        |   |
|                                                                                                                            | Consolidated Condensed Statements of Cash  Flows –  Three Quarters Ended May 29, 2004 and May 31, 2003 |   |
|                                                                                                                            |                                                                                                        |   |
|                                                                                                                            | Notes to Consolidated Condensed Financial  Statements                                                       |   |
|                                                                                                                            |                                                                                                        |   |
| Item 2  –  Management’s  Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                        |
|                                                                                                                            |                                                                                                        |   |
| Item  4  –  Controls and Procedures                                                                    |                                                                                                        |
|                                                                                                                            |                                                                                                        |   |
| Part II – Other Information and Signatures                                                                                 |                                                                                                        |
|                                                                                                                            |                                                                                                        |   |
| Item  1  –  Legal Proceedings                                                                          |                                                                                                        |
|                                                                                                                            |                                                                                                        |   |
| Item  2  –  Changes in Securities, Use of Proceeds and Issuer  Purchases of Equity Securities          |                                                                                                        |
|                                                                                                                            |                                                                                                        |   |
| Item 6  –  Exhibits  and Reports on form 8-K                                                           |                                                                                                        |
|                                                                                                                            |                                                                                                        |   |
| Signatures                                                                                                                      |                                                                                                        |

 

----

 

FAMILY DOLLAR STORES, INC., ANDSUBSIDIARIES

 

CONSOLIDATEDCONDENSED BALANCE SHEETS

(Unaudited)

 
| **(In thousands, except share amounts)**                                                                                                                                                                                                       |   | **May 29,2004** |      | **August 30,2003** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-----------|--------------------|--------|
|                                                                                                                                                                                                                                           |   |            |      |               |   |
| Assets                                                                                                                                                                                                                                         |   |            |      |               |   |
| Current assets:                                                                                                                                                                                                                                |   |            |      |               |   |
| Cash and cash equivalents (Note 2)                                                                                                                                                                                                             |   | $               | 196,451   |               | $      | 206,731 |   |
| Merchandise inventories                                                                                                                                                                                                                        |   | 912,510         |      | 854,370            |   |
| Deferred income taxes                                                                                                                                                                                                                          |   | 70,016          |      | 61,769             |   |
| Prepayments and other current assets                                                                                                                                                                                                           |   | 34,252          |      | 33,622             |   |
| Total current assets                                                                                                                                                                                                                           |   | 1,213,229       |      | 1,156,492          |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
| Property and equipment, net                                                                                                                                                                                                                    |   | 866,176         |      | 812,123            |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
| Other assets                                                                                                                                                                                                                                   |   | 16,096          |      | 17,080             |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
|                                                                                                                                                                                                                                           |   | $               | 2,095,501 |               | $      | 1,985,695 |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
| Liabilities  and Shareholders’ Equity                                                                                                                                                                                                     |   |            |      |               |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
| Current liabilities:                                                                                                                                                                                                                           |   |            |      |               |   |
| Accounts payable and accrued liabilities                                                                                                                                                                                                       |   | $               | 627,423   |               | $      | 594,660 |   |
| Income taxes payable                                                                                                                                                                                                                           |   | 3,869           |      | 671                |   |
| Total current liabilities                                                                                                                                                                                                                      |   | 631,292         |      | 595,331            |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
| Deferred income taxes                                                                                                                                                                                                                          |   | 89,964          |      | 79,395             |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
| Shareholders’ equity (Notes 5 and 6):                                                                                                                                                                                                     |   |            |      |               |   |
| Preferred stock, $1 par; authorized and  unissued 500,000 shares                                                                                                                                                                               |   |            |      |               |   |
| Common stock, $.10 par;  authorized 600,000,000 shares;  issued 187,458,533 shares at May 29, 2004,  and 186,909,993 shares at August 30, 2003  and outstanding 168,728,513 shares at May 29, 2004,  and 172,208,710 shares at August 30, 2003 |   | 18,746          |      | 18,691             |   |
| Capital in excess of par                                                                                                                                                                                                                       |   | 102,090         |      | 87,457             |   |
| Retained earnings                                                                                                                                                                                                                              |   | 1,493,442       |      | 1,315,600          |   |
|                                                                                                                                                                                                                                           |   | 1,614,278       |      | 1,421,748          |   |
| Less common stock held in treasury,  at cost (18,730,020 shares  at May 29, 2004 and 14,701,283 at  August 30, 2003) (Note 6)                                                                                                                  |   | 240,033         |      | 110,779            |   |
| Total shareholders’ equity                                                                                                                                                                                                                |   | 1,374,245       |      | 1,310,969          |   |
|                                                                                                                                                                                                                                           |   |            |      |               |   |
|                                                                                                                                                                                                                                           |   | $               | 2,095,501 |               | $      | 1,985,695 |   |

 

See notes to consolidated condensedfinancial statements

 

2

----

 

FAMILY DOLLAR STORES, INC., ANDSUBSIDIARIES

 

CONSOLIDATEDCONDENSED STATEMENTS OF INCOME

(Unaudited)

 
|                                            |   | **Quarter  Ended** |      |
|-------------------------------------------------|--------|--------------------|-----------|
| **(In thousands, except per share  amounts)**   |   | **May 29,  2004**  |      | **May 31,  2003** |   |
|                                            |   |               |      |   |   |
| Net sales                                       |   | $                  | 1,310,159 |   | $ | 1,176,877 |   |
|                                            |   |               |      |   |   |
| Cost and expenses:                              |   |               |      |   |   |
| Cost of sales                                   |   | 852,783            |      | 768,495 |   |
| Selling, general and administrative expenses    |   | 341,140            |      | 298,767 |   |
|                                            |   | 1,193,923          |      | 1,067,262 |   |
| Income before provision for taxes on income     |   | 116,236            |      | 109,615 |   |
| Provision for taxes on income                   |   | 42,426             |      | 40,010 |   |
|                                            |   |               |      |   |   |
| Net income                                      |   | $                  | 73,810    |   | $ | 69,605 |   |
|                                            |   |               |      |   |   |
| Net income per common share - Basic (Note  6)   |   | $                  | 0.43      |   | $ | 0.40 |   |
|                                            |   |               |      |   |   |
| Average shares - Basic (Note 6)                 |   | 170,862            |      | 172,075 |   |
|                                            |   |               |      |   |   |
| Net income per common share - Diluted (Note  6) |   | $                  | 0.43      |   | $ | 0.40 |   |
|                                            |   |               |      |   |   |
| Average shares - Diluted (Note 6)               |   | 171,571            |      | 173,049 |   |
|                                            |   |               |      |   |   |
| Dividends per common share                      |   | $                  | 0.085     |   | $ | 0.075 |   |

 

See notes to consolidatedcondensed financial statements.

 

3

----

 

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

 

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

 
|                                            |   | **Three  Quarters Ended** |      |
|-------------------------------------------------|--------|---------------------------|-----------|
| **(In thousands, except per share  amounts)**   |   | **May 29,  2004**         |      | **May 31,  2003** |   |
|                                            |   |                      |      |   |   |
| Net sales                                       |   | $                         | 3,957,640 |   | $ | 3,541,697 |   |
|                                            |   |                      |      |   |   |
| Cost and expenses:                              |   |                      |      |   |   |
| Cost of sales                                   |   | 2,595,125                 |      | 2,334,962 |   |
| Selling, general and administrative expenses    |   | 1,016,526                 |      | 892,092 |   |
|                                            |   | 3,611,651                 |      | 3,227,054 |   |
| Income before provision for taxes on income     |   | 345,989                   |      | 314,643 |   |
| Provision for taxes on income                   |   | 126,286                   |      | 114,845 |   |
|                                            |   |                      |      |   |   |
| Net income                                      |   | $                         | 219,703   |   | $ | 199,798 |   |
|                                            |   |                      |      |   |   |
| Net income per common share - Basic (Note  6)   |   | $                         | 1.28      |   | $ | 1.16 |   |
|                                            |   |                      |      |   |   |
| Average shares - Basic (Note 6)                 |   | 171,759                   |      | 172,434 |   |
|                                            |   |                      |      |   |   |
| Net income per common share - Diluted (Note  6) |   | $                         | 1.27      |   | $ | 1.15 |   |
|                                            |   |                      |      |   |   |
| Average shares - Diluted (Note 6)               |   | 172,736                   |      | 173,344 |   |
|                                            |   |                      |      |   |   |
| Dividends per common share                      |   | $                         | 0.245     |   | $ | 0.215 |   |

 

See notes to consolidatedcondensed financial statements.

 

4

----

 

FAMILY DOLLAR STORES, INC., ANDSUBSIDIARIES

 

CONSOLIDATEDCONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 
|                                                                               |   | **Three  Quarters Ended** |    |
|------------------------------------------------------------------------------------|--------|---------------------------|---------|
| **(In thousands)**                                                                 |   | **May 29,  2004**         |    | **May 31,  2003** |   |
| Cash flows from operating activities:                                              |   |                      |    |   |   |
| Net income                                                                         |   | $                         | 219,703 |   | $ | 199,798 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                      |    |   |   |
| Depreciation and amortization                                                      |   | 72,929                    |    | 65,339 |   |
| Deferred income taxes                                                              |   | 2,322                     |    | 3,028 |   |
| Loss on disposition of property and  equipment                                     |   | 3,097                     |    | 2,207 |   |
| Changes in operating assets and  liabilities:                                      |   |                      |    |   |   |
| Merchandise inventories                                                            |   | (58,140                   | )       | (5,178 | ) |
| Income tax refund receivable                                                       |   | —                    |    | 6,469 |   |
| Prepayments and other current assets                                               |   | (630                      | )       | (18,411 | ) |
| Other assets                                                                       |   | 984                       |    | (788 | ) |
| Accounts payable and accrued liabilities                                           |   | 31,353                    |    | (8,625 | ) |
| Income taxes payable                                                               |   | 3,198                     |    | 4,602 |   |
|                                                                               |   | 274,816                   |    | 248,441 |   |
| Cash flows from investing activities:                                              |   |                      |    |   |   |
| Capital expenditures                                                               |   | (130,698                  | )       | (139,989 | ) |
| Proceeds from dispositions of property and  equipment                              |   | 619                       |    | 1,022 |   |
|                                                                               |   | (130,079                  | )       | (138,967 | ) |
| Cash flows from financing activities:                                              |   |                      |    |   |   |
| Net purchases of stock for treasury                                                |   | (129,254                  | )       | (65,835 | ) |
| Exercise of employee stock options                                                 |   | 14,688                    |    | 17,839 |   |
| Payment of dividends                                                               |   | (40,451                   | )       | (35,344 | ) |
|                                                                               |   | (155,017                  | )       | (83,340 | ) |
|                                                                               |   |                      |    |   |   |
| Net change in cash and cash equivalents                                            |   | (10,280                   | )       | 26,134 |   |
|                                                                               |   |                      |    |   |   |
| Cash and cash equivalents at beginning of  period                                  |   | 206,731                   |    | 220,265 |   |
|                                                                               |   |                      |    |   |   |
| Cash and cash equivalents at end of period                                         |   | $                         | 196,451 |   | $ | 246,399 |   |
|                                                                               |   |                      |    |   |   |
| Supplemental disclosure of cash flow  information:                                 |   |                      |    |   |   |
| Cash paid during the period for:                                                   |   |                      |    |   |   |
| Interest                                                                           |   | $                         | —  |   | $ | — |   |
| Income taxes                                                                       |   | 117,034                   |    | 96,087 |   |

 

See notes to consolidatedcondensed financial statements.

 

5

----

 

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

**1.**       In the opinion of Family DollarStores, Inc. (the “Company”), the accompanying unaudited consolidated condensedfinancial statements contain all adjustments (consisting of only normalrecurring accruals) necessary to present fairly the financial position as ofMay 29, 2004, and the results of operations for the quarter and the threequarters ended May 29, 2004 and May 31, 2003, and the cash flows for the threequarters ended May 29, 2004 and May 31, 2003. For further information, refer to the consolidated financial statementsand footnotes included in the Company’s annual report on Form 10-K for the yearended August 30, 2003.

 

**Theresults of operations for the three quarters ended May 29, 2004, are notnecessarily indicative of the results to be expected for the full year.**

 

**TheCompany manages its business on the basis of one reportable segment.**

 

**2.**       The Company considers all highlyliquid investments with an original maturity of three months or less to be“cash equivalents.”  The carrying amountof the Company’s cash equivalents approximates fair value due to the shortmaturities of these investments and consists primarily of money market funds,U.S. government agency securities and tax-exempt notes and bonds.  The Company maintains cash deposits withmajor banks which from time to time may exceed federally insured limits.  The Company periodically assesses thefinancial condition of the institutions and believes that the risk of any lossis minimal.

 

**3.**       The preparation of the Company’sconsolidated financial statements, in conformity with accounting principlesgenerally accepted in the United States of America, requires management to makeestimates and assumptions.  Theseestimates and assumptions affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from these estimates.

 

**4.**       The Company has unsecuredrevolving credit facilities with banks for short-term borrowings of up to $200million.  One hundred million dollars ofthe facilities expires on May 26, 2005, and the remaining $100 million expireson May 31, 2009.  Borrowings under thesefacilities are at a variable interest rate based on short-term market interestrates.

 

**5.**       The Company’s non-qualified stockoption plan provides for the granting of options to key employees to purchaseshares of common stock at prices not less than the fair market value on thedate of grant.  Options expire fiveyears from the date of grant and are exercisable to the extent of 40% after thesecond anniversary of the grant and an additional 30% at each of the followingtwo anniversary dates on a cumulative basis.

 

6

----

 

The Companyaccounts for stock options granted to employees using the intrinsic valuemethod, under which no compensation expense is recorded since the exerciseprice of the stock options is equal to the market price of the underlying stockon the date of the grant.  Hadcompensation cost for the stock options issued been determined consistent withStatement of Financial Accounting Standards No. 123, “Accounting forStock-Based Compensation,” net income and net income per share would have beenreduced to the following pro forma amounts (in thousands, except per shareamounts):

** **
|                                    |   | **Quarter  Ended** |   | **Three  Quarters Ended** |   |
|-----------------------------------------|--------|--------------------|--------|---------------------------|--------|
|                                    |   | **May 29,  2004**  |   | **May 31,  2003**         |   | **May 29,  2004** |   | **May 31,  2003** |   |
|                                    |   |               |   |                      |   |   |   |   |   |
| Net income-as reported                  |   | $                  | 73,810 |                      | $      | 69,605 |   | $ | 219,703 |   | $ | 199,798 |   |
|                                    |   |               |   |                      |   |   |   |   |   |
| Pro forma stock-based compensation cost |   | (2,139             | )      | (1,540                    | )      | (6,120 | ) | (4,482 | ) |
|                                    |   |               |   |                      |   |   |   |   |   |
| Net income–pro forma               |   | $                  | 71,671 |                      | $      | 68,065 |   | $ | 213,583 |   | $ | 195,316 |   |
|                                    |   |               |   |                      |   |   |   |   |   |
| Net income per share as reported:       |   |               |   |                      |   |   |   |   |   |
| Basic                                   |   | $                  | .43    |                      | $      | .40 |   | $ | 1.28 |   | $ | 1.16 |   |
| Diluted                                 |   | $                  | .43    |                      | $      | .40 |   | $ | 1.27 |   | $ | 1.15 |   |
|                                    |   |               |   |                      |   |   |   |   |   |
| Net income per share–pro forma:    |   |               |   |                      |   |   |   |   |   |
| Basic                                   |   | $                  | .42    |                      | $      | .40 |   | $ | 1.24 |   | $ | 1.13 |   |
| Diluted                                 |   | $                  | .42    |                      | $      | .39 |   | $ | 1.24 |   | $ | 1.13 |   |

 

**Theassumptions used to calculate the fair value of options granted are evaluatedand revised, as necessary, to reflect market conditions and experience.**

** **

**Thefollowing is a summary of transactions under the plan during the three quartersended May 29, 2004 and May 31, 2003 (In thousands, except per share amounts).**

** **
|                  |   | **Three  Quarters Ended**           |       |
|-----------------------|--------|-------------------------------------|------------|
|                  |   | **May 29,  2004**                   |       | **May 3l,  2003** |   |
|                  |   | **Number of  shares  under option** |       | **Option  price  per share** |   | **Number of  shares  under option** |   | **Option  price  per share** |   |
|                  |   |                                | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Outstanding-beginning |   | 5,001                               |       | $14.75-$39.00 |   | 4,411 |   | $11.38-$35.50 |   |
| Granted               |   | 1,937                               |       | $27.50-$44.00 |   | 1,686 |   | $24.75-$34.50 |   |
| Exercised             |   | (549                                | )          | $15.00-$31.25 |   | (818 | ) | $11.38-$27.25 |   |
| Cancelled             |   | (242                                | )          |   |   | (88 | ) |   |   |
| Outstanding-ending    |   | 6,147                               |       | $14.75-$44.00 |   | 5,191 |   | $14.25-$35.50 |   |
|                  |   |                                |       |   |   |   |   |   |   |
| Exercisable options   |   | 1,423                               |       | $14.75-$35.50 |   | 1,141 |   | $14.25-$27.75 |   |

 

**6.**       Basic net income per common shareis computed by dividing net income by the weighted average number of sharesoutstanding during each period.  Dilutednet income per common share gives effect to all securities representingpotential common shares that were dilutive and outstanding during theperiod.  The exercise prices for certainof the outstanding stock options that the Company has awarded exceed theaverage market price of the Company’s common stock.  Such stock options are antidilutive and were not included in thecomputation of diluted net income per common share.   In the calculation of diluted net income per common share, thedenominator includes the number of additional common shares that would havebeen outstanding if the Company’s outstanding dilutive stock options had beenexercised.

 

**OnOctober 9, 2002, the Company announced that the Board of Directors authorizedthe purchase of up to 5 million shares of its outstanding common stock fromtime to time as market conditions warrant. During the year ended August 30, 2003, the Company purchased in the openmarket, 2.2 million shares at a cost of**

 

7

----

 

**$65.9million.  On April 22, 2004, the Companyannounced that the Board of Directors authorized the purchase of up to anadditional 5 million shares of its outstanding common stock from time to timeas market conditions warrant.  Duringthe three quarters ended May 29, 2004, the Company purchased 4.0 million sharesat a cost of $129.3 million, leaving 3.8 million shares authorized to bepurchased.**

 

**Thefollowing table sets forth the computation of basic and diluted net income percommon share (In thousands, except per share amounts):**

 
|                                                |   | **Quarter  Ended** |   |
|-----------------------------------------------------|--------|--------------------|--------|
|                                                |   | **May 29,  2004**  |   | **May 31,  2003** |   |
| Basic Net Income Per Share:                         |   |               |   |   |   |
|                                                |   |               |   |   |   |
| Net Income                                          |   | $                  | 73,810 |   | $ | 69,605 |   |
|                                                |   |               |   |   |   |
| Weighted Average Number of Shares  Outstanding      |   | 170,862            |   | 172,075 |   |
|                                                |   |               |   |   |   |
| Net Income Per Common Share – Basic            |   | $                  | .43    |   | $ | .40 |   |
|                                                |   |               |   |   |   |
| Diluted Net Income Per Share:                       |   |               |   |   |   |
|                                                |   |               |   |   |   |
| Net Income                                          |   | $                  | 73,810 |   | $ | 69,605 |   |
|                                                |   |               |   |   |   |
| Weighted Average Number of Shares  Outstanding      |   | 170,862            |   | 172,075 |   |
|                                                |   |               |   |   |   |
| Effect of Dilutive Securities – Stock  Options |   | 709                |   | 974 |   |
| Average Shares – Diluted                       |   | 171,571            |   | 173,049 |   |
|                                                |   |               |   |   |   |
| Net Income Per Common Share – Diluted          |   | $                  | .43    |   | $ | .40 |   |

 
|                                                |   | **Three  Quarters Ended** |    |
|-----------------------------------------------------|--------|---------------------------|---------|
|                                                |   | **May 29,  2004**         |    | **May 31,  2003** |   |
| Basic Net Income Per Share:                         |   |                      |    |   |   |
|                                                |   |                      |    |   |   |
| Net Income                                          |   | $                         | 219,703 |   | $ | 199,798 |   |
|                                                |   |                      |    |   |   |
| Weighted Average Number of Shares  Outstanding      |   | 171,759                   |    | 172,434 |   |
|                                                |   |                      |    |   |   |
| Net Income Per Common Share – Basic            |   | $                         | 1.28    |   | $ | 1.16 |   |
|                                                |   |                      |    |   |   |
| Diluted Net Income Per Share:                       |   |                      |    |   |   |
|                                                |   |                      |    |   |   |
| Net Income                                          |   | $                         | 219,703 |   | $ | 199,798 |   |
|                                                |   |                      |    |   |   |
| Weighted Average Number of Shares  Outstanding      |   | 171,759                   |    | 172,434 |   |
|                                                |   |                      |    |   |   |
| Effect of Dilutive Securities – Stock  Options |   | 977                       |    | 910 |   |
| Average Shares – Diluted                       |   | 172,736                   |    | 173,344 |   |
|                                                |   |                      |    |   |   |
| Net Income Per Common Share – Diluted          |   | $                         | 1.27    |   | $ | 1.15 |   |

 

8

----

 

**7.**       On January 30, 2001, JaniceMorgan and Barbara Richardson, two individuals who have held the position ofStore Manager for subsidiaries of the Company, filed a Complaint against theCompany in the United States District Court for the Northern District ofAlabama.  Thereafter, pursuant to theCourt’s ruling, notice of the pendency of the lawsuit was sent to approximately13,000 current and former Store Managers holding the position on or after July1, 1999.  Approximately 2,550 of thosereceiving such notice filed consent forms and joined the lawsuit as plaintiffs,including approximately 2,300 former Store Managers and approximately 250current employees.  The case hasproceeded as a collective action under the Fair Labor Standards Act(“FLSA”).  The Complaint alleges thatthe Company violated the FLSA by classifying the plaintiffs and other similarlysituated current and former Store Managers as “exempt” employees who are not entitledto overtime compensation.  Plaintiffsseek to recover unpaid overtime compensation, prejudgment interest, liquidateddamages, an award of attorneys’ fees, costs and expenses, and such other reliefas the Court may deem proper.

 

**Discovery in the case is now complete and the trial iscurrently expected to commence in the second half of 2004.  The Court has granted the Company’s motionto dismiss approximately 2,200 plaintiffs for failure to respond todiscovery.  The plaintiffs have askedthe Court to reconsider such dismissal and have indicated their intent toappeal any adverse decision.  If thedismissal Order is not reversed, the plaintiffs in the case will be reduced toapproximately 350.  In addition, the Companyhas filed a motion requesting that the Court decertify the case from treatmentas a collective action and the plaintiffs have moved for summary judgment withrespect to 34 of the plaintiffs, which motions are currently under submissionfor the Court’s consideration.**

 

**In general, the Company believes that the Store Managersare “exempt” employees under the FLSA and have been properly compensated, thatthis action should not proceed as a collective action and that the Company hasmeritorious defenses that should enable it to ultimately prevail.  However, the outcome of any litigation isinherently uncertain.  The Company bearsthe burden of proof at trial of establishing its entitlement to the exemptionfrom the overtime requirements of the FLSA, and no assurances can be given thatthe Company will be successful in defending this action.  The nature of this action and its presentprocedural posture mean that future rulings by the Court on both substantiveand procedural motions and issues, including those now under submission, maysignificantly affect the course and outcome of these proceedings and its impacton the Company.  Resolution of thismatter could have a material adverse effect on the Company’s financialposition, liquidity or results of operation.**

 

**The Company is involved in numerous other legal proceedingsand claims incidental to our business, including litigation related to allegedfailures to comply with various state and federal employment laws.  While the ultimate outcome cannot bedetermined, the Company currently believes that the proceedings and claims,both individually and in the aggregate, should not have a material adverseeffect on the Company’s financial position, liquidity or results ofoperations.  However, the outcome of anylitigation is inherently uncertain and, if decided adversely to the Company,the Company may be subject to liability that could have a material adverseeffect on the Company’s financial position, liquidity or results of operations.**

 

9

----

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS**

**OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

**This discussion summarizes the significant factorsaffecting the consolidated results of operations and financial condition of theCompany for the periods ended May 29, 2004 and May 31, 2003.  This discussion should be read inconjunction with the Consolidated Condensed Financial Statements and Notes toConsolidated Condensed Financial Statements included in this quarterlyreport.  For further information, referto the Consolidated Financial Statements and Notes to Consolidated FinancialStatements included in the Company’s annual report on Form 10-K for the yearended August 30, 2003.**

** **

**Liquidity and Capital Resources**

** **

**At May 29, 2004, the Company had working capital of $581.9million with cash and cash equivalents of approximately $196.5 million and nooutstanding borrowings.  Changes inworking capital and cash and cash equivalents during the first three quartersof fiscal 2004 and fiscal 2003 were primarily the result of earnings, capitalexpenditures and repurchases of the Company’s Common Stock.  At May 29, 2004, the Company’s inventorieswere approximately 8.5% higher on a per store basis than at the end of thethird quarter last year.  In a difficultsales environment, the Company became more aggressive in assuring that thestores were amply stocked with the basic consumable goods customers need day-inand day-out.  The additional inventoriesin the stores are primarily these consumable goods, as apparel inventories wereonly approximately 1.5% higher on a per store basis. The Company expectsconsumables inventories to be at more normal levels at the end of the fourthquarter.**

** **

**Capital expenditures for the first three quarters of fiscal2004, were approximately $130.7 million, and are currently expected to beapproximately $225 to $250 million for fiscal 2004.  The majority of planned capital expenditures for fiscal 2004 isrelated to the Company’s new store expansion including construction of anincreased number of stores; existing store expansion, relocation and renovation;the on-going construction of an eighth full-service distribution center andexpenditures related to store-focused technology infrastructure.  The new store expansion and eighthdistribution center will require additional investment in merchandise inventories.  In fiscal 2004, the Company currently plansto open approximately 500 stores and close 64 stores for a net addition ofapproximately 436 stores, compared with the opening of 475 stores and closingof 64 stores for a net addition of 411 stores in fiscal 2003. Of these newstore openings approximately 88 of the properties will be owned by the Company,compared to 85 of the properties in the fiscal 2003 store openings.  The Company’s focus on urban markets has contributedto the strong sales performance of new stores, but the lead times for theopening of urban stores continue to be less predictable.  The Company also currently plans to expandor relocate approximately 75 stores and renovate approximately 115 stores infiscal 2004, compared with the expansion or relocation of 103 stores andrenovation of 42 stores in fiscal 2003. In the first three quarters of fiscal 2004, the Company opened 297stores, closed 55 stores, expanded or relocated 63 stores and renovated 84stores.  In fiscal 2005, the Company’spreliminary plans are to open 500 to 560 stores and close 60 to 70 storesresulting in approximately 8% to 9% net new store growth and 9% to 10% netsquare footage growth.  To achieve thistarget, the Company is retaining real estate brokers in certain majormetropolitan areas and also is adding personnel to its Real EstateDepartment.  Urban markets will continueto be the focus.  The Company occupiesmost of its stores under operating leases. Store opening, closing, expansion, relocation, and renovation plans, aswell as overall capital expenditure plans, are continuously reviewed and aresubject to change.**

 

10

----

 

**The Company has unsecured revolvingcredit facilities with banks for short-term borrowings of up to $200million.  One hundred million dollars ofthe facilities expires on May 26, 2005, and the remaining $100 million expireson May 31, 2009.  The Company had noborrowings against these facilities during the three quarters ended May 29,2004.  Cash flow from current operationsis expected to be sufficient to meet planned liquidity and capital resourceneeds, including store expansion and other capital spending programs and anyrepurchase of the Company’s Common Stock. In addition, the Company has available revolving credit facilities asdiscussed above.**

** **

**On October 9, 2002, the Company announced that theBoard of Directors authorized the purchase of up to 5 million shares of itsoutstanding Common Stock from time to time as market conditions warrant.  During the year ended August 30, 2003, theCompany purchased in the open market, 2.2 million shares at a cost of $65.9million.  On April 22, 2004, the Companyannounced that the Board of Directors authorized the purchase of up to anadditional 5 million shares of its outstanding common stock from time to timeas market conditions warrant.  Duringthe three quarters ended May 29, 2004, the Company purchased 4.0 million sharesat a cost of $129.3 million, leaving 3.8 million shares authorized to be purchased.**

** **

**The following table shows the Company’s obligationsand commitments as of May 29, 2004 to make future payments under contractualobligations (in thousands):**

** **
|                               |   | **Payments  Due During One Year Fiscal Period Ending** |       |
|------------------------------------|--------|--------------------------------------------------------|------------|
| **Contractual Obligations**        |   | **Total**                                              | ** ** | **May  2005** | ** ** | **May  2006** | ** ** | **May  2007** | ** ** | **May  2008** | ** ** | **May  2009** | ** ** | **Thereafter** | ** ** |
|                               |   |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Merchandise letters of credit      |   | $                                                      | 104,166    |   | $ | 104,166 |   | $ |   |   | $ |   |   | $ |   |   | $ |   |   | $ |   |   |
| Operating leases                   |   | 859,722                                                |       | 204,868 |   | 177,513 |   | 145,147 |   | 108,328 |   | 74,106 |   | 149,760 |   |
| Construction obligations           |   | 63,285                                                 |       | 63,285 |   |   |   |   |   |   |   |   |   |   |   |
| Total Contractual Cash Obligations |   | $                                                      | 1,027,173  |   | $ | 372,319 |   | $ | 177,513 |   | $ | 145,147 |   | $ | 108,328 |   | $ | 74,106 |   | $ | 149,760 |   |

 

Most of the Company’s operating leases provide theCompany with an option to extend the term of the lease at designated rates.

 

The following table shows the Company’s other commercial commitments asof May 29, 2004 (in thousands):

 
| **Other Commercial Commitments** |   | **Total  Amounts  Committed** |   |
|----------------------------------|--------|-------------------------------|--------|
|                             |   |                          |   |
| Standby letters of credit        |   | $                             | 65,600 |   |
| Surety bonds                     |   | 6,149                         |   |
| Total Commercial Commitments     |   | $                             | 71,749 | ** ** |

** **

**At May 29, 2004, approximately $7.4 million of themerchandise letters of credit are included in accounts payable and accruedliabilities on the Company’s balance sheet. A substantial portion of theoutstanding amount of standby letters of credit and surety bonds (which areprimarily renewed on an annual basis) are used as surety for future premium anddeductible payments to the Company’s workers’ compensation and generalliability insurance carrier.  TheCompany accrues for these future payment liabilities as described in the“Critical Accounting Policies” section of this discussion.**

 

11

----

 

**Results of Operations**

** **

**Net sales**

** **

**Net sales increased 11.3% in the quarter ended May29, 2004, as compared with the quarter ended May 31, 2003, and increased 11.7%in the three quarters ended May 29, 2004, as compared with the three quartersended May 31, 2003.  The sales increaseswere attributable to increased sales in existing stores and sales from newstores opened as part of the Company’s store expansion program.  Sales of consumable merchandise, such ashousehold chemicals, paper products and food, continued to be satisfactory inthe third quarter and first three quarters of fiscal 2004.  However, sales of more discretionarymerchandise, including hanging apparel, domestics, giftware and seasonal goodswere below the Company’s plan.**

** **

**Sales in existing stores increased 1.9% in thequarter ended May 29, 2004, above the comparable period in fiscal 2003, withsales of hardlines merchandise increasing approximately 3.4% and sales ofsoftlines merchandise decreasing approximately 3.4%.  In the third quarter of fiscal 2004, the customer count, asmeasured by the number of register transactions in existing stores, was at thesame level in both quarters and the average transaction increased approximately1.7% to $8.87.  Sales in existing storesincreased 2.2% in the three quarters ended May 29, 2004, above the comparableperiod in fiscal 2003, with sales of hardlines merchandise increasingapproximately 3.2% and sales of softlines merchandise decreasing approximately1.2%.  In the three quarters ended May29, 2004 the customer count increased approximately 1.1% and the averagetransaction increased approximately 1.0% to $9.04.  Hardlines as a percentage of total sales increased toapproximately 77.3% in the third quarter of fiscal 2004 compared toapproximately 76.1% in the third quarter of fiscal 2003, and increased toapproximately 77.5% in the first three quarters of fiscal 2004 compared toapproximately 76.8% in the first three quarters of fiscal 2003.  Softlines as a percentage of sales decreasedto 22.7% in the third quarter of fiscal 2004 (with hanging apparel and shoesrepresenting 12.7%, basic apparel 4.0% and domestics 6.0%) compared to 23.9% inthe third quarter of fiscal 2003 (with hanging apparel and shoes representing13.5%, basic apparel 4.1% and domestics 6.3%). Softlines as a percentage of sales decreased to 22.5% in the first threequarters of fiscal 2004 (with hanging apparel and shoes representing 11.9%,basic apparel 4.1% and domestics 6.5 %) compared to 23.2% in the first threequarters of fiscal 2003 (with hanging apparel and shoes representing 12.3%,basic apparel 4.4% and domestics 6.5%). The Company’s current plan is for sales in existing stores in the fourthquarter to increase in the 2% to 4% range.**

** **

**Hardlines merchandise includes primarily householdchemical and paper products, health and beauty aids, candy, snack and otherfood, electronics, housewares and giftware, toys, school supplies, hardware andautomotive supplies.  Softlinesmerchandise includes men’s, women’s, boy’s, girl’s and infant’s clothing andaccessories, shoes, and domestic items such as blankets, sheets and towels.**

** **

**The average number of stores open during the firstthree quarters of fiscal 2004 was 9.0% more than during the first threequarters of fiscal 2003.  The Companyhad 5,269 stores in operation at May 29, 2004, as compared with 4,840 stores inoperation at May 31, 2003, representing an increase of approximately 8.9%.**

** **

**Cost ofSales**

** **

**Cost of sales increased 11.0% in the quarter endedMay 29, 2004, as compared with the quarter ended May 31, 2003, and increased11.1% in the three quarters ended May 29, 2004, as compared to the threequarters ended May 31, 2003.  Theseincreases primarily reflected the additional sales volume between years.  Cost of sales, as a percentage of net sales,was 65.1% in the quarter ended May 29, 2004, compared with 65.3% in the quarterended May 31, 2003, and was 65.6% in the three quarters ended May 29, 2004,compared with 65.9% in the three quarters ended May 31, 2003.  The**

 

12

----

 

**decreasein the cost of sales percentage for the third quarter of fiscal 2004, comparedto the third quarter of fiscal 2003, was due in part to a change in thetreatment of certain vendor allowances in conformity with a recent accountingpronouncement.  This change will notimpact the comparability of future quarters. In addition, lower markdowns as a result of purchasing seasonal goods ona conservative basis and better allocation of those goods to the stores alsocontributed to the decrease in the cost of sales percentage in the thirdquarter of fiscal 2004.  Factorsadversely impacting the cost of sales percentage in the third quarter of fiscal2004 included increased shrinkage primarily due to the Company’s opening inrecent years of a higher percentage of stores in urban markets, lower initialmargins on merchandise due to the continued strong sales of consumables andbelow plan sales of softlines, as well as increased freight due to higher fuelcosts.**

** **

**The decrease in the cost of sales percentage for thefirst three quarters of fiscal 2004 was due in part to improved initial marginson merchandise through better sourcing of goods and the favorable impact ofsupply chain initiatives.  Thisimprovement was most significant for higher margin non-basic items, which representa higher percentage of sales in the second quarter resulting in greaterimprovement in the cost of sales percentage in the second quarter than ineither the first or third quarter. Markdowns as a percentage of sales were also lower in the first threequarters of fiscal 2004, compared to the first three quarters of fiscal2003.  A slight increase in markdowns inthe first quarter of fiscal 2004 was offset by lower markdowns in the secondand third quarters.  The change in thetreatment of certain vendor allowances in conformity with a recent accountingpronouncement mentioned previously also contributed to the decrease in thefirst three quarters of fiscal 2004 as a percent to sales.  These decreases in the cost of salespercentage in the first three quarters of fiscal 2004 were offset partially byincreased freight costs and by increased shrinkage.  The Company’s plan is for the cost of sales percentage to be atapproximately the same level for the fourth quarter of fiscal 2004 compared tothe fourth quarter of fiscal 2003, primarily due to the continuing impact ofthe factors discussed above for the third quarter of fiscal 2004.**

** **

**Selling,general and administrative expenses**

** **

**Selling, general and administrative expensesincreased 14.2% in the quarter ended May 29, 2004, as compared with the quarterended May 31, 2003, and increased 13.9% in the three quarters ended May 29,2004, as compared with the three quarters ended May 31, 2003.  The increases in these expenses were dueprimarily to additional costs arising from the continued growth in the numberof stores in operation.  Selling,general and administrative expenses, as a percentage of net sales, were 26.0%in the quarter ended May 29, 2004, compared with 25.4% in the quarter ended May31, 2003, and were 25.7% in the three quarters ended May 29, 2004, as comparedwith 25.2% in the three quarters ended May 31, 2003.  The increase in the percentages for the quarter and first threequarters ended May 29, 2004 were due primarily to below plan sales and continuedincreases in insurance costs, primarily workers’ compensation, (approximately0.2% for the third quarter and first three quarters of fiscal 2004), and toincreased occupancy costs (approximately 0.1% for the third quarter and firstthree quarters of fiscal 2004).  Theworkers’ compensation cost increase is due in large part to the continuedgrowth in the number of associates and to an increase in the average claimamount primarily due to medical cost increases.  While the Company is aggressively working to reduce the frequencyand severity of claims through corporate preventative initiatives, these costsare expected to continue to increase faster than sales in the near term.**

 

13

----

 

**Theoccupancy cost increase related in part to the Company’s opening of morebuild-to-suit and other new store construction.  The change in the treatment of certain vendor allowancesmentioned previously also contributed to this increase (approximately 0.2% forthe third quarter and first three quarters of fiscal 2004).  This change will not impact thecomparability of future quarters.  TheCompany’s plan is for selling, general and administrative expenses as apercentage of sales for the fourth quarter of fiscal 2004 to be atapproximately the same level as for the fourth quarter of fiscal year 2003.**

** **

**Provisionfor taxes on income**

** **

**The effective tax rate was 36.5% for the thirdquarter and first three quarters ended May 29, 2004 and May 31, 2003.  For fiscal year 2004, the Company’s plan isfor the effective tax rate to remain at approximately the same level as therate in fiscal 2003.**

** **

**Critical Accounting Policies**

** **

**Management believes the following accountingprinciples are critical because they involve significant judgments, assumptions,and estimates used in the preparation of the Company’s consolidated financialstatements.**

** **

**MerchandiseInventories:**

** **

**Inventories are valued using the retail method,based on retail prices less markon percentages, which approximates the lower offirst-in, first-out (FIFO) cost or market. The Company records adjustments to inventory through cost of goods soldwhen retail price reductions, or markdowns, are taken against on-handinventory.  In addition, managementmakes estimates and judgments regarding, among other things, initial markups,markdowns, future demand for specific product categories and market conditions,all of which can significantly impact inventory valuation.  If actual demand or market conditions aredifferent than those projected by management, additional markdowns may benecessary.  This risk is generallyhigher for seasonal merchandise than for non-seasonal goods.  The Company also provides for estimatedinventory losses for damaged, lost or stolen inventory for the period from thephysical inventory to the financial statement date.  These estimates are based on historical experience and otherfactors.**

** **

**Propertyand equipment:**

** **

**Property and equipment is stated at cost.  Depreciation for financial reportingpurposes is being provided principally by the straight-line method over theestimated useful lives of the related assets. The valuation and classification of these assets and the assignment ofuseful depreciable lives involves significant judgments and the use ofestimates.  The Company generallyassigns no salvage value to property and equipment.  Property and equipment is reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable.  Historically, impairmentlosses on fixed assets have not been material to the Company’s financialposition and results of operations.**

** **

**InsuranceLiabilities:**

** **

**The Company is primarily self-insured for healthcare, property loss, workers’ compensation and general liability costs.  These costs are significant primarily due tothe large number of the Company’s retail locations and employees.  The Company’s self-insurance liabilities arebased on the total estimated costs of claims filed and estimates of claimsincurred but not reported, less amounts paid against such claims, and are notdiscounted.  Management reviews currentand historical claims**

 

14

----

 

**data indeveloping its estimates.  The Companyalso uses information provided by outside actuaries with respect to workers’compensation and general liability claims. If the underlying facts and circumstances of the claim change or thehistorical trend is not indicative of future trends, then the Company may berequired to record additional expense or a reduction to expense which could bematerial to the reported financial condition and results of operation.**

** **

**Forward-Looking Statements**

** **

**Certain statements contained herein and elsewhere inthis Form 10-Q which are not historical facts are forward-looking statementsmade pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995.  Theseforward-looking statements address the Company’s plans and activities or eventswhich the Company expects will or may occur in the future such as futurecapital expenditures, store openings, closings, renovations, expansions andrelocations, additional distribution facilities, sales, cost of sales,expenses, the outcome of legal proceedings and other aspects of the Company’sbusiness and operations.  A number ofimportant factors could cause actual results to differ materially from thoseexpressed in any forward-looking statements, whether written or oral, made byor on behalf of the Company.  Suchfactors include, but are not limited to, competitive factors and pricingpressures, general economic conditions, the impact of acts of war or terrorism,changes in consumer demand and product mix, unusual weather that maytemporarily impact sales, inflation, merchandise supply constraints, generaltransportation or distribution delays or interruptions, dependence on imports,changes in currency exchange rates, tariffs, quotas, and freight rates,availability of real estate, costs and delays associated with building, openingand operating new distribution facilities and stores, costs and potentialproblems associated with the implementation of new systems and technology,including supply chain systems and electronic commerce, changes in energyprices and the impact on consumer spending and the Company’s costs, legalproceedings and claims, changes in health care and other insurance costs andthe effects of legislation and regulations on wage levels and entitlementprograms.  Consequently, all of theforward-looking statements made are qualified by these and other factors, risksand uncertainties.  Readers arecautioned not to place undue reliance on these forward-looking statements,which speak only as of the date of this Form 10-Q.  The Company does not undertake to publicly update or revise itsforward-looking statements even if experience or future changes make it clearthat projected results expressed or implied in such statements will not berealized.**

** **

Item 4.            Controls and Procedures

 

**Based onan evaluation by management of the Company (with the participation of theCompany’s Chief Executive Officer and Chief Financial Officer), as of the endof the period covered by this report, the Company’s Chief Executive Officer andChief Financial Officer have concluded that the Company’s disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended, (the “Exchange Act”)) areeffective to provide reasonable assurance that information required to bedisclosed by the Company in reports that the Company files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in Securities and Exchange Commission rules and forms.  Consistent with the suggestion of theSecurities and Exchange Commission, the Company has formed a DisclosureCommittee consisting of key Company personnel designed to review the accuracyand completeness of all disclosures made by the Company.  There was no change in the Company’sinternal control over financial reporting during the fiscal quarter to whichthis report relates that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.**

 

15

----

 

**PART II - OTHER INFORMATION**

** **

**Item 1.**            Legal Proceedings

** **

**Theinformation contained in Note 7 to the Consolidated Condensed FinancialStatements contained in Part I, Item 1 of the Form 10-Q is incorporated hereinby this reference.**

 

**Item 2.**            Changes in Securities, Use of Proceeds and Issuer Purchases of EquitySecurities

 

**Shares ofCommon Stock repurchased by the Company during the quarter ended May 29, 2004,were as follows:**

 
| **Period**     |   | **Total  Number of  Shares  Purchased** |   | **Average  Price  Paid per  Share** |   | **Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** |      | **Maximum  Number  of Shares  that May Yet Be  Purchased Under  the Plans or  Programs** |      |
|----------------|--------|-----------------------------------------|--------|-------------------------------------|--------|---------------------------------------------------------------------------------------------|-----------|------------------------------------------------------------------------------------------|-----------|
|           |   |                                    |   |                                |   |                                                                                        |      |                                                                                     |      |
| March          |   |                                    |   |                                |   |                                                                                        |      |                                                                                     |      |
| 2/29/04-4/3/04 |   | 265,600                                 |   | $                                   | 35.71  |                                                                                        | 265,600   |                                                                                     | 6,576,200 |   |
|           |   |                                    |   |                                |   |                                                                                        |      |                                                                                     |      |
| April          |   |                                    |   |                                |   |                                                                                        |      |                                                                                     |      |
| 4/4/04-5/1/04  |   | 1,065,500                               |   | $                                   | 32.63  |                                                                                        | 1,065,500 |                                                                                     | 5,510,700 |   |
|           |   |                                    |   |                                |   |                                                                                        |      |                                                                                     |      |
| May            |   |                                    |   |                                |   |                                                                                        |      |                                                                                     |      |
| 5/2/04-5/29/04 |   | 1,744,700                               |   | $                                   | 29.56  |                                                                                        | 1,744,700 |                                                                                     | 3,766,000 |   |
|           |   |                                    |   |                                |   |                                                                                        |      |                                                                                     |      |
| Total          |   | 3,075,800                               |   | $                                   | 31.16  |                                                                                        | 3,075,800 |                                                                                     | 3,766,000 |   |

##### ** **

**OnOctober 9, 2002, the Company announced that the Board of Directors authorizedthe purchase of up to 5 million shares of its outstanding Common Stock fromtime to time as market conditions warrant. During the year ended August 30, 2003, the Company purchased 2.2 millionshares.  On April 22, 2004, the Companyannounced that the Board of Directors authorized the purchase of up to anadditional 5 million shares of its outstanding common stock from time to timeas market conditions warrant.  During thethree quarters ended May 29, 2004, the Company purchased 4.0 millionshares.  All shares have been purchasedin open market transactions.  Sharespurchased under the share repurchase authorization are held in treasury andcurrently a portion of such shares are reissued under the Family Dollar 2000Outside Directors Plan.  There is noexpiration date governing the period during which the Company can make sharerepurchases.  There are no otherrepurchase programs under which the Company is authorized to repurchaseoutstanding shares.**

 

16

----

 

**Item 6.**            Exhibits and Reports on Form 8-K

** **
| (a)                  |   | Exhibits  filed herewith:                                                                                                                                                                                                                   |
|----------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                                                                                                        |
| 10    |   | Amendment  dated as of January 16, 2003 to the Company’s 1989 Non-Qualified Stock Option  Plan to increase by 6,000,000 the number of shares available for issuance  under the Plan.                                                   |
|                 |   |                                                                                                                                                                                                                                        |
| 31.1                 |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of Chief Executive Officer                                                                                                                                                 |
|                 |   |                                                                                                                                                                                                                                        |
| 31.2                 |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of Chief Financial Officer                                                                                                                                                 |
|                 |   |                                                                                                                                                                                                                                        |
| 32.1                 |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of Chief Executive Officer                                                                                                                                                 |
|                 |   |                                                                                                                                                                                                                                        |
| 32.2                 |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of Chief Financial Officer                                                                                                                                                 |
|                 |   |                                                                                                                                                                                                                                        |
| (b)                  |   | Reports on  Form 8-K                                                                                                                                                                                                                        |
|                 |   |                                                                                                                                                                                                                                        |
| 1.                   |   | Form 8-K  dated March 23, 2004, with news release dated March 23, 2004, reporting sales  and earnings for the second quarter ended February 28, 2004, and other  matters relating to the Company’s operations and financial condition. |
|                 |   |                                                                                                                                                                                                                                        |
| 2.                   |   | Form 8-K  dated April 8, 2004, with news release dated April 8, 2004, reporting sales  for the five week period ended April 3, 2004.                                                                                                        |
|                 |   |                                                                                                                                                                                                                                        |
| 3.                   |   | Form 8-K  dated April 22, 2004, with news release dated April 22, 2004, reporting the  authorization by the Board of Directors for the Company to purchase up to an  additional 5,000,000 shares of the Company’s Common Stock.        |
|                 |   |                                                                                                                                                                                                                                        |
| 4.                   |   | Form 8-K  dated May 6, 2004, with news release dated May 6, 2004, reporting sales for  the four week period ended May 1, 2004, and the revision of earnings  guidance.                                                                      |
|                 |   |                                                                                                                                                                                                                                        |
| 5.                   |   | Form 8-K  dated May 27, 2004, with credit agreements dated May 27, 2004, reporting one  year extension and amendment of credit agreements between the Company and  Bank of America, N.A. and Wachovia Bank, National Association.           |

 

17

----

 

**SIGNATURES**

** **

** **

**Pursuant to the requirements of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.**

 

 
|                    | **FAMILY  DOLLAR STORES, INC.**            |                      |
|-------------------------|--------------------------------------------|---------------------------|
|                    | **(Registrant)**                           |
|                    |                                       |
|                    |                                       |
| **Date:  July 2, 2004** |                                       | **/s/ R.  James Kelly**   |   |
|                    | **R.  James Kelly**                        |
|                    | **Vice  Chairman-Chief Financial Officer** |
|                    |                                       |
|                    |                                       |
| **Date:  July 2, 2004** |                                       | **/s/ C.  Martin Sowers** |   |
|                    | **C.  Martin Sowers**                      |
|                    | **Senior  Vice President-Finance**         |
|                         |                                            |                           |  |  |

 

18

----