FAMILY DOLLAR STORES INC - 10-K Annual Report

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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended August 29, 1998
Commission File No. 1-6807

FAMILY DOLLAR STORES, INC.
(Exact name of registrant as specified in its charter)

Delaware 56-0942963
(State of incorporation) (I.R.S. Employer Identification Number)

10401 Old Monroe Road, Matthews, North Carolina 28105
(Address of principal executive offices) (Zip Code)

P. O. Box 1017, Charlotte, North Carolina 28201-1017
(Mailing address)

Registrant's telephone number, including area code (704) 847-6961

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
Common Stock, $.10 Par Value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(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 such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No _____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant based on the closing price of these shares
on the New York Stock Exchange on November 10, 1998, was approximately
$2,571,000,000.

The number of shares of the registrant's Common Stock outstanding as of
November 10, 1998, was 172,254,708.

DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Documents
(To the extent indicated herein) Location in Form 10-K
Annual Report to Stockholders for the Part II (Items 5, 6, 7 and 8)
fiscal year ended August 29, 1998 Part IV (Item 14)

Proxy Statement dated November 25, 1998 Part III (Items 10, 11, 12 and 13)
for the Annual Meeting of Stockholders

PART I

ITEM 1. BUSINESS

The original predecessor of Family Dollar Stores, Inc., was
organized in 1959 to operate a self-service retail store in Charlotte,
North Carolina. In subsequent years, additional stores were opened, and
separate corporations generally were organized to operate these stores.
Family Dollar Stores, Inc. (together with its direct and indirect
subsidiaries and related entities referred to herein as the "Company"),
was incorporated in Delaware in 1969, and all existing corporate entities
became wholly-owned subsidiaries. Additional stores continued to be
opened and operated in direct and indirect subsidiaries and related
entities. Four indirect subsidiaries organized as North Carolina
corporations provide distribution, trucking, operations, marketing and
other services to the Company.

The Company operates a chain of self-service retail discount stores.
As of November 1, 1998, there were 3,066 stores in 38 states and the
District of Columbia as follows:

Texas 318 Indiana 96 New Mexico 26
North Carolina 219 Louisiana 96 Connecticut 22
Georgia 194 Illinois 90 Kansas 20
Ohio 191 West Virginia 88 Iowa 17
Florida 184 Mississippi 80 Delaware 16
Tennessee 148 Arkansas 64 Minnesota 12
Virginia 147 Missouri 57 Nebraska 11
Pennsylvania 129 Oklahoma 53 Rhode Island 10
Alabama 118 Massachusetts 49 New Hampshire 8
South Carolina 118 Maryland 47 Vermont 6
Michigan 114 Wisconsin 42 Maine 5
Kentucky 115 Colorado 26 South Dakota 3
New York 100 New Jersey 26 District of Columbia 1

The number of stores operated by the Company at the end of each of
its last five fiscal years is as follows: 2,215 stores on August 31, 1994;
2,416 stores on August 31, 1995; 2,581 stores on August 31, 1996; 2,767
stores on August 31, 1997; and 3,017 stores on August 29, 1998.

During the fiscal year ended August 29, 1998, 65 stores were
closed, 38 stores were relocated within the same shopping center or market
area, 52 stores were expanded in size and 170 stores were renovated. All
of the stores are occupied under leases, except 137 stores owned by the
Company. (See "Properties" herein.) The Company has announced plans to
open approximately 350 to 400 stores and close approximately 50 stores
during the current fiscal year. Such plans are continually reviewed and
subject to change. From August 30, 1998, through November 1, 1998, the

Company opened 50 new stores, closed 1 store, relocated 5 stores, expanded
5 stores and renovated 97 stores. All stores opening in the fiscal year
ending August 28, 1999, will have the new interior store layout that has
been utilized in all new stores opened since September 1, 1995. This
layout features increased emphasis on seasonal and promotional goods,
improved presentation of merchandise, lower fixtures and wider aisles for
an attractive, customer-friendly shopping environment.

As of November 1, 1998, the Company had in the aggregate
approximately 24,600,000 square feet of total store space (including
receiving rooms and other non-selling areas). The typical store has
approximately 6,000 to 8,000 square feet of total area. The stores are in
both rural and urban areas, and they are typically freestanding or located
in shopping centers with adequate parking available. As of November 1,
1998, there were approximately 1,565 stores located in communities with
populations of less than 15,000; approximately 615 stores in communities
with populations of 15,000 to 50,000; and approximately 886 stores in
communities with populations of over 50,000. All stores are similar in
appearance and display highly visible red and white "Family Dollar Stores"
or "Family Dollar" signs.

The Company's stores are operated on a self-service, cash-and-carry
basis, and low overhead permits the sale of merchandise at a
relatively moderate markup. During the fiscal year ended August 31,
1994, in the face of increasing competition, the Company began to change
its merchandising strategy away from promotional pricing and towards
everyday low prices. In December 1993, prices were reduced on a limited
number of items in 400 stores and in June 1994, this program was expanded
to 1,000 stores. In September and October 1994, the number of stores with
merchandise at reduced prices increased to 1,800, and the number of
stockkeeping units with price reductions increased from approximately 500
to approximately 2,500. A lesser number of price reductions were taken in
the balance of the stores in less competitive markets. No single store
accounted for more than one-eighth of one percent of sales during the
fiscal year ended August 29, 1998. Most of the stores are open six
evenings a week, and many are open on Sunday afternoons.

The stores offer a variety of merchandise including men's,
women's, boys', girls' and infants' clothing, shoes, domestics, household
products, health and beauty aids, toys, school supplies, candy and snack
food, electronics, housewares, paint and automotive supplies. During the
fiscal year ended August 29, 1998, soft goods, including wearing apparel,
shoes, linens, blankets, bedspreads and curtains, accounted for
approximately 32.6 percent of the Company's sales. During the fiscal
year ended August 29, 1998, nationally advertised brand merchandise
accounted for approximately 25 percent of sales, Family Dollar label
merchandise accounted for approximately 5 percent of sales and merchandise
sold under other labels, or which was unlabeled, accounted for the balance
of sales. Irregular merchandise accounted for approximately 1 percent of
sales during such period. The Company does not accept credit cards or
extend credit.

The Company has a policy of uniform pricing of most items in its
stores. Selected merchandise in stores in the most competitive markets
carries lower prices and in stores in the least competitive markets with
higher operating costs carries higher prices. The Company advertises
through circulars which are inserted in newspapers or mailed directly to
consumers' residences, and also advertises to a limited degree in
newspapers. As part of the Company's plan to reduce expenses to support
the program of price reductions on merchandise in its stores, in the fiscal
year ended August 31, 1995, the number of advertising circulars distributed
to consumers' homes or inserted in newspapers was cut from 22 to 15. In
the fiscal year ended August 31, 1996, the number of advertising circulars
distributed was reduced from 15 to 14. In the fiscal year ended August 31,
1997, 14 circulars again were distributed. In the fiscal year ended
August 29, 1998, the number of advertising circulars distributed was
reduced from 14 to 9. In the fiscal year ending August 28, 1999, the
current plan is to distribute 6 circulars. The Company has an unadvertised
internal maximum price policy which currently is to price most items of
merchandise under $17.99.

The Company purchases its merchandise from approximately 1,725
suppliers and generally has not experienced difficulty in obtaining
adequate quantities of merchandise. Approximately 61 percent of the
merchandise is manufactured in the United States and substantially all such
merchandise is purchased directly from the manufacturer. Purchases of
imported merchandise are made directly from the manufacturer or from
importers. No single supplier accounted for more than 1.5 percent of the
merchandise sold by the Company in the fiscal year ended August 29, 1998.
Each of the Company's 20 buyers specializes in the purchase of specific
categories of goods.

During the fiscal year ended August 29, 1998, approximately
2.5 percent of the merchandise purchased by the Company was shipped
directly to its stores by the manufacturer or importer. Most of the
balance of the merchandise was received at the Company's Distribution
Centers in Matthews, North Carolina, West Memphis, Arkansas, and Warren
County, Virginia. Merchandise is delivered to the stores from the
Distribution Centers in Matthews, West Memphis and Warren County by
Company-owned trucks and by common and contract carriers. During the last
fiscal year, approximately 73 percent of the merchandise delivered was by
common or contract carriers. The average distance between the Distribution
Center in Matthews and the approximately 1,150 stores served by that
facility on August 29, 1998, is approximately 314 miles. The average
distance between the Distribution Center in West Memphis and the
approximately 1,120 stores served by that facility on August 29, 1998, is
approximately 467 miles. The average distance between the Distribution
Center in Warren County and the approximately 747 stores served by that
facility on August 29, 1998, is approximately 333 miles.

During the fiscal year ended August 29, 1998, the Company also
operated satellite distribution buildings in Salisbury, North Carolina, and
Memphis, Tennessee. High volume, bulk items of merchandise are shipped by
vendors directly to these facilities and then delivered to the stores by
contract carriers.

The business in which the Company is engaged is highly competitive.
The principal competitive factors include location of stores, price and
quality of merchandise, in-stock consistency, merchandise assortment and
presentation, and customer service. The Company competes for sales and
store locations in varying degrees with national, regional and local
retailing establishments, including department stores, discount stores,
variety stores, dollar stores, discount clothing stores, drug stores,
grocery stores, convenience stores, outlet stores, warehouse stores and
other stores. Many of the largest retail merchandising companies in the
nation have stores in areas in which the Company operates. The relatively
small size of the Company's stores permits the Company to open new units in
rural areas and small towns, as well as in large urban centers, in
locations convenient to the Company's low and low-middle income customer
base. As the Company's sales are focused on low priced, basic merchandise,
the stores offer customers a reasonable selection of competitively priced
merchandise within a relatively narrow range of price points.

Generally, in a typical store the highest monthly volume of sales
occurs in December, and the lowest monthly volume of sales occurs in
January and February.

The Company maintains a substantial variety and depth of basic and
seasonal merchandise inventory in stock in its stores (and in distribution
centers for weekly store replenishment) to attract customers and meet their
shopping needs. Vendors' trade payment terms are negotiated to help
finance the cost of carrying this inventory. The Company must balance the
value of maintaining high inventory levels to meet customers' demands with
the cost of having inventories at levels that exceed such demands and that
must be marked down in price in order to sell.

The Company has registered with the U. S. Patent and Trademark Office
the name "Family Dollar Stores" as a service mark.

On August 29, 1998, the Company had approximately 13,300 full-time
employees and approximately 12,800 part-time employees. Approximately 825
additional employees were hired on a temporary basis for the 1997 Christmas
season. None of the Company's employees are covered by collective
bargaining agreements. The Company considers its employee relations
to be good.

ITEM 2. PROPERTIES

As of November 1, 1998, the Company operated 3,066 stores in 38
states and the District of Columbia. See "Business" herein. With the
exception of 137 stores owned by the Company, all of the Company's stores
were occupied under lease. Most of the leases are for fixed rentals. A
large majority of the leases contain provisions which may require
additional payments based upon a percentage of sales or property taxes,
insurance premiums or common area maintenance charges.

Of the Company's 2,929 leased stores at November 1, 1998, all but
192 leases contain options to renew for additional terms; in most cases for
a number of successive five-year periods. The following table sets forth
certain data, as of November 1, 1998, concerning the expiration dates of all
leases with renewal options:

Approximate Number of Approximate Number of
Leases Expiring Leases Expiring
Assuming No Exercise Assuming Full Exercise
Fiscal Years of Renewal Options of Renewal Options

1999 447 0

2000-2002 1,446 3

2003-2005 698 82

2006-2008 141 274

2009 and thereafter 5 2,378

Of the 137 Company-owned stores, 18 are located in Texas, 16 in North
Carolina, 14 in Georgia, 12 in Indiana, 11 in Virginia, 10 in Illinois, 7
each in Michigan and Tennessee, 6 in Ohio, 4 each in Alabama, South
Carolina, West Virginia, Florida, Arkansas, Kentucky and Louisiana, 2 each
in Iowa and Oklahoma, and one each in Mississippi, New Jersey, Missouri and
Kansas. In these owned stores, there are approximately 1,075,000 total
square feet of space.

The Company also owns its Executive Offices and Distribution Center
located on a 64.5 acre tract of land in Matthews, North Carolina, just
outside of Charlotte, in a building containing approximately 810,000
square feet of which approximately 740,000 square feet are used for
the Distribution Center which includes receiving, warehousing and
shipping facilities, and approximately 70,000 square feet are used for
Executive Offices.

The Company owns a second full-service distribution center located on
a 75-acre tract of land in West Memphis, Arkansas, in a building
containing approximately 850,000 square feet. This facility became
operational in the spring of 1994 with 550,000 square feet of space, and a
300,000 square foot addition was substantially completed by the end of the
Company's fiscal year on August 31, 1996.

The Company owns a third full-service distribution center located on
a 75-acre tract of land in Warren County, Virginia, in a building containing
approximately 907,000 square feet. This facility became operational in
January 1998.

Construction began in November 1998 on a fourth full-service
distribution center on an 85-acre tract of land leased by the Company in
Duncan, Oklahoma. Under the lease, the Company has the option to purchase
the land and the distribution facility. This facility will contain
approximately 907,000 square feet and the plan is to begin shipping
merchandise from this facility to stores in the fall of 1999. The estimated
cost for the land, building, equipment and related services is $50 million.
The aggregate of the lease payments and the purchase price is estimated to
be $50 million. The Company expects to exercise this purchase option within
the next twelve months. The lease payments and purchase price are expected
to be financed with cash flow from current operations and, if necessary,
short-term borrowing under the Company's bank lines of credit.

During the fiscal year ended August 29, 1998, the Company leased
buildings in Salisbury, North Carolina (approximately 300,000 square feet)
and Memphis, Tennessee (approximately 270,000 square feet) to serve as
satellite distribution facilities, and a building in Charlotte
(approximately 310,000 square feet) to provide storage space for the
Distribution Center in nearby Matthews. The Company also leased another
building in Charlotte (approximately 78,000 square feet) as a reclamation
facility for merchandise returned from the stores and for storage. During
the current fiscal year, the Company is no longer leasing the 300,000 square
foot space in Salisbury or the 310,000 square foot space in Charlotte. The
270,000 square foot space in Memphis is currently being leased to provide
storage space for the Distribution Center in nearby West Memphis, Arkansas,
and the 78,100 square foot space in Charlotte currently is being leased for
storage. Additional storage space also is being leased on a short-term
basis in Charlotte and Winchester, Virginia.

The Company owns and operates a fleet of tractor-trailers and trucks
to distribute merchandise to some of its stores.

ITEM 3. LEGAL PROCEEDINGS

The Company knows of no material pending legal proceedings, other
than ordinary routine litigation incidental to the business, to which the
Company is a party or of which any of its property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted during the fourth quarter of the
fiscal year ended August 29, 1998, to a vote of security holders through the
solicitation of proxies or otherwise.

ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT

The following information is furnished with respect to each of the
executive officers of the Company as of November 1, 1998:

Name Position and Office Age

Leon Levine (1) Chairman of the Board 61

Howard R. Levine (2) President 39

R. James Kelly (3) Vice Chairman 51

George R. Mahoney, Jr. (4) Executive Vice President- 56
General Counsel and Secretary

R. David Alexander, Jr. (5) Senior Vice President- 41
Distribution and
Logistics

Albert S. Rorie (6) Senior Vice President- 48
Information Technology

John J. Scanlon (7) Senior Vice President- 49
Merchandising and Advertising

C. Martin Sowers (8) Senior Vice President- 40
Finance

Phillip W. Thompson (9) Senior Vice President- 49
Store Operations

Samuel J. Bernstein (10) Vice President- 39
General Merchandise Manager

Charles W. Broome (11) Vice President- 50
Store Operations

Charles A. Brunjes (12) Vice President- 39
Store Development

Terry A. Cozort (13) Vice President- 55
Human Resources

Charles D. Curry (14) Vice President- 43
Asset Protection

Bruce W. Fosson (15) Vice President- 52
Store Operations

Charles S. Gibson, Jr. (16) Vice President- 37
Logistics

Owen R. Humphrey (17) Vice President- 57
Distribution and
Transportation

Gilbert A. LaFare (18) Vice President- 52
Real Estate

Edgar L. Paxton (19) Vice President- 56
Advertising and
Sales Promotion

Lou Scognamiglio (20) Vice President- 49
General Merchandise Manager

Richard P. Siliakus (21) Vice President- 39
General Merchandise Manager

Kenneth T. Smith (22) Vice President- 36
Business Development

(1) Mr. Leon Levine founded the Company's business in 1959 and
was its President, Chief Executive Officer and Treasurer
from 1959 until September 1977 when he was elected Chairman
of the Board, Chief Executive Officer and Treasurer.
He served in these positions until August 1998 when he
resigned as Chief Executive Officer and Treasurer.
Leon Levine retains the position of Chairman of the Board.
He is the father of Howard R. Levine.

(2) Mr. Howard R. Levine was employed by the Company in
various capacities in the Merchandising Department from
1981 to 1987, including employment as Senior Vice
President-Merchandising and Advertising. From 1988 to
1992, Mr. Levine was President of Best Price Clothing
Stores, Inc., a chain of ladies' apparel stores. From 1992
to April 1996, he was self-employed as an investment
manager. He rejoined the Company in April 1996, and was
elected Vice President-General Merchandise Manager:
Softlines in April 1996, Senior Vice President-
Merchandising and Advertising in September 1996,
President and Chief Operating Officer in April 1997,
and Chief Executive Officer in August 1998. He is the
son of Leon Levine.

(3) Mr. R. James Kelly was employed by the Company as Vice
Chairman-Chief Financial and Administrative Officer in
January 1997. For more than five years prior to his
employment by the Company, he was a partner with
PricewaterhouseCoopers LLP.

(4) Mr. George R. Mahoney, Jr. was employed by the Company as
General Counsel in October 1976. He was elected Vice
President-General Counsel and Secretary in April 1977,
Senior Vice President-General Counsel and Secretary in
January 1984 and Executive Vice President-General Counsel
and Secretary in October 1991.

(5) Mr. R. David Alexander, Jr. was employed by the Company as
Senior Vice President-Distribution and Transportation in
August 1995, and was promoted to Senior Vice President-
Distribution and Logistics in September 1997. Prior to his
employment by the Company, he was employed by Northern
Automotive Co., Inc., a chain of discount automotive supply
stores, from June 1993 to August 1995, where he was Senior
Vice President-Distribution and Transportation. Prior to
his employment by Northern Automotive Co., Inc., he was
employed by Best Products Co., Inc., a chain of catalogue
showroom stores, from June 1985 to May 1993 where he was
Senior Vice President-Distribution and Transportation.

(6) Mr. Albert S. Rorie was employed by the Company in various
capacities in the Data Processing area from March 1973
through January 1981, including employment as Director of
Data Processing. Mr. Rorie was self-employed as a data
processing consultant from January 1981 through May 1982,
when he rejoined the Company and was elected Vice
President-Data Processing. He was elected Senior Vice
President-Data Processing in January 1988 and Senior Vice
President-Information Technology in September 1997.

(7) Mr. John J. Scanlon was employed by the Company as
Divisional Vice President in March 1992. Mr. Scanlon was
elected Vice President-General Merchandise Manager:
Hardlines in April 1996, and was elected Senior Vice
President-Merchandising and Advertising in June 1998.

(8) Mr. C. Martin Sowers was employed by the Company as an
Accountant in October 1984 and was promoted to Assistant
Controller in January 1985. He was elected Controller in
January 1986, Vice President-Controller in July 1989 and
Senior Vice President-Finance in December 1991.

(9) Mr. Phillip W. Thompson was employed by the Company in
January 1984 in the Store Operations Department. He was
elected Vice President-Store Operations in January 1985,
and Senior Vice President-Store Operations in January 1992.

(10) Mr. Samuel J. Bernstein was employed by the Company in 1980
and became a Buyer in the Merchandising Department in 1983.
He was promoted to Divisional Vice President-Merchandising
in July 1996, and was elected Vice President-General
Merchandise Manager in June 1998.

(11) Mr. Charles W. Broome was employed by the Company in 1977
in the Store Operations Department. He was promoted to
Regional Vice President-Store Operations in February 1992.
He was elected Vice President-Store Operations in
October 1996.

(12) Mr. Charles A. Brunjes was employed by the Company in 1988
as Director of Merchandise and Store Presentation in the
Store Operations Department. He was promoted to Divisional
Vice President-Store Services in July 1995, and was elected
Vice President-Store Development in September 1998.

(13) Mr. Terry A. Cozort was employed by the Company as Director
of Human Resources in April 1988. He was elected Vice
President-Human Resources in July 1989.

(14) Mr. Charles D. Curry was employed by the Company in May
1982 in the Store Operations Department and served in
several positions including Regional Vice President-Store
Operations. He was elected Vice President-Asset Protection
in June 1997.

(15) Mr. Bruce W. Fosson was employed by the Company in March
1992 as Regional Vice President-Store Operations. He was
elected Vice President-Store Operations in March 1996.

(16) Mr. Charles S. Gibson, Jr. was employed by the Company as
Vice President-Logistics in September 1997. Prior to his
employment by the Company, he was employed by Campo
Electronics, Appliances and Computers, Inc. a regional
chain of electronics stores, from November 1994 to August
1997, where his last position was Chief Operating Officer
and his previous position was Vice President-Logistics and
Operations. Prior to his employment by Campo Electronics,
Appliances and Computers, Inc., he was employed by Big B,
Inc., a drug store chain, from August 1991 to November 1994
where he was Vice President-Logistics.

(17) Mr. Owen R. Humphrey was employed by the Company in August
1979, and was promoted to Distribution Center Operations
Manager in December 1983. Mr. Humphrey was promoted
to Director of Distribution in January 1988, and was
elected Vice President-Distribution and Transportation
in July 1989.

(18) Mr. Gilbert A. LaFare was employed by the Company in August
1992 as Vice President-Real Estate.

(19) Mr. Edgar L. Paxton was employed by the Company in December
1985 as Director of Advertising. He was elected Vice
President-Advertising and Sales Promotion in January 1988.

(20) Mr. Lou Scognamiglio was employed by the Company as Vice
President-General Merchandise Manager: Softlines in
February 1997. For more than five years prior to his
employment by the Company, he was employed by One Price
Clothing Stores, Inc., a regional chain of apparel stores,
where his last position was Divisional Merchandise Manager.

(21) Mr. Richard P. Siliakus was employed by the Company in 1981
as a Buyer in the Merchandising Department. He was
promoted to Divisional Vice President-Merchandising in
December 1994, and was elected Vice President-General
Merchandise Manager in June 1998.

(22) Mr. Kenneth T. Smith was employed by the Company as a
financial analyst in March 1990. Mr. Smith was promoted to
Director of Information Services-Operations in February
1992 and to Director of Accounting in October 1992. He was
elected Vice President-Controller in October 1995 and Vice
President-Loss Prevention in June 1997. He became Vice
President-Business Development in March 1998.

All executive officers of the Company are elected by and serve at
the pleasure of the Board of Directors.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 29, 1998, on
page 16 under the captions "Market Price and Dividend Information" and
"Market Prices and Dividends" and is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 29, 1998, on
pages 14 and 15 under the caption "Summary of Selected Financial Data" and is
incorporated herein by reference. The Company did not have any long-term
debt at the end of each of its last five fiscal years.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 29, 1998, on
pages 14 through 16 under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and is incorporated herein
by reference.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not Applicable

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 29, 1998, on
pages 17 through 24 and is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to the Company's
directors and compliance by the Company's directors, executive officers and
certain beneficial owners of the Company's Common Stock with Section 16(a) of
the Securities Exchange Act of 1934 is included in the Company's proxy
statement dated November 25, 1998, on pages 4 through 7 under the caption
"Election of Directors" and on page 15 under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference. The information required by this item as to executive officers is
included in Item 4A in Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the Company's
proxy statement dated November 25, 1998, on pages 7 through 14 under the
caption "Executive Compensation" and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Company's
proxy statement dated November 25, 1998, on pages 3 and 4 under the caption
"Ownership of the Company's Securities" and is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Company's
proxy statement dated November 25, 1998, on pages 14 and 15 under the caption
"Related Transactions" and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

1 and 2. Financial Statements and Financial Statement Schedules:
The consolidated financial statements of Family Dollar Stores,
Inc., and subsidiaries which are incorporated by reference to the
Annual Report to Stockholders for the fiscal year ended August 29,
1998, are set forth in the index on page 19 of this report.

All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions, are inapplicable
or the information is included in the consolidated financial
statements, and therefore, have been omitted.

The financial statements of Family Dollar Stores, Inc. (Parent
Company) are omitted because the registrant is primarily a
holding company and all subsidiaries included in the consolidated
financial statements being filed, in the aggregate, do not have
minority equity and/or indebtedness to any person other than the
registrant or its consolidated subsidiaries in amounts which
together exceed 5 percent of the total assets as shown by the most
recent year-end consolidated balance sheet.

3. Exhibits:

Exhibits incorporated by reference:

3(a)(i) Certificate of Incorporation, dated November 24, 1969,
(filed as Exhibit 3(a) to the Company's Registration
Statement on Form S-1, No. 2-35468).

(ii) Certificate of Amendment, dated February 2, 1972, of
Certificate of Incorporation (filed as Exhibit 3(a)(ii)
to the Company's Form 10-K (File No. 1-6807) for the year
ended August 31, 1980).

(iii) Certificate of Amendment, dated January 23, 1979, of
Certificate of Incorporation (filed as Exhibit 2 to the
Company's Form 10-Q (File No. 1-6807) for the quarter
ended February 28, 1979).

(iv) Certificate of Amendment, dated January 20, 1983, of
Certificate of Incorporation (filed as Exhibit 4(iv) to
the Company's Registration Statement on Form S-3,
No. 2-85343).

(v) Certificate of Amendment, dated January 16, 1986, of
Certificate of Incorporation (filed as Exhibit 3(a)(v) to
the Company's Form 10-K (File No. 1-6807) for the year
ended August 31, 1986).

(vi) Certificate of Amendment, dated January 15, 1987, of
Certificate of Incorporation (filed as Exhibit 3(a)(vi)
to the Company's Form 10-K (File No. 1-6807) for the year
ended August 31, 1987).

(vii) Certificate of Amendment, dated January 15, 1998, of
Certificate of Incorporation (filed as Exhibit 3.1 to
the Company's Registration Statement on Form S-8,
No. 333-48751).

* 10 (i) Incentive Profit Sharing Plan amended as of January 16, 1997
(filed as Exhibit 10(ii) to the Company's Form 10-Q (File
No. 1-6807) for the quarter ended February 28, 1997).

* 10 (ii) 1989 Non-Qualified Stock Option Plan, amended as of
January 15, 1998 (filed as Exhibit 99.1 to the Company's
Registration Statement on Form S-8, No. 333-48751).

* 10 (iii) Family Dollar Employee Savings and Retirement Plan and Trust
amended and restated as of January 1, 1987 (filed as Exhibit
10 (viii) to the Company's Form 10-K (File No. 1-6807) for
the year ended August 31, 1995).

* 10 (iv) Amendment No. One dated January 15, 1996, to Family Dollar
Employee Savings and Retirement Plan and Trust (filed as
Exhibit 10(v) to the Company's Form 10-K (File No. 1-6807)
for the year ended August 31, 1996).

* 10 (v) Amendment No. 2, dated January 15, 1998, to Family Dollar
Employee Savings and Retirement Plan and Trust (filed as
Exhibit 10(ii) to the Company's Form 10-Q (File No. 1-6807)
for the quarter ended February 28, 1998).

* 10 (vi) Amendment No. 3, dated March 19, 1998, to Family Dollar
Employee Savings and Retirement Plan and Trust (filed as
Exhibit 10(iii) to the Company's Form 10-Q (File No. 1-6807)
for the quarter ended February 28, 1998).

* 10 (vii) Trust Agreement between Merrill Lynch Trust Company of North
Carolina, as Trustee, and the Company and Family Dollar,
Inc., as Employer, with respect to Family Dollar Employee
Savings and Retirement Plan and Trust (filed as Exhibit 10
to the Company's Form 10-Q (File No. 1-6807) for the quarter
ended May 31, 1998.)

10(viii) Credit Agreement, dated as of March 31, 1996, between the
Company and NationsBank, N.A.,(filed as Exhibit 10 to the
Company's Form 10-Q (File No. 1-6807) for the quarter ended
May 31, 1996).

10 (ix) Amendment No. 1, dated as of March 26, 1997, to the Credit
Agreement, dated as of March 31, 1996, between the Company
and NationsBank, N.A. (filed as Exhibit 10(i) to the
Company's Form 10-Q (File No. 1-6807) for the quarter ended
November 30, 1997).

10 (x) Amendment No. 2, dated as of December 31, 1997, to the
Credit Agreement, dated as of March 31, 1996, between the
Company and NationsBank, N.A. (filed as Exhibit 10(ii) to
the Company's Form 10-Q (File No. 1-6807) for the quarter
ended November 30, 1997).

10 (xi) Letter Agreement dated March 5, 1998, among NationsBank,
N.A., the Company and Family Dollar, Inc., amending Credit
Agreement, dated as of March 31, 1996, as amended, among
NationsBank, N.A., the Company and Family Dollar, Inc.
(filed as Exhibit 10(i) to the Company's Form 10-Q (File
No. 1-6807) for the quarter ended February 28, 1998).

* 10 (xii) Employment Agreement dated December 17, 1996, between the
Company and R. James Kelly (filed as Exhibit 10(i) to the
Company's Form 10-Q (File No. 1-6807) for the quarter ended
February 28, 1997).

* 10(xiii) Employment Agreement dated April 29, 1997, between the
Company and Howard R. Levine (filed as Exhibit 10(i) to the
Company's Form 10-Q (File No. 1-6807) for the quarter ended
May 31, 1997).

* 10 (xiv) Amendment dated August 28, 1997, to the Employment
Agreement dated April 29, 1997, between the Company
and Howard R. Levine (filed as Exhibit 10(i) to the
Company's Form 10-K (File No. 1-6807) for the year ended
August 31, 1997).

Exhibits filed herewith:

3(b) Bylaws as amended on August 19, 1998.

10 (i) Amendment, dated as of November 19, 1998, to the Credit
Agreement, dated as of March 31, 1996, between the Company,
Family Dollar, Inc. and NationsBank, N.A.

* 10 (ii) Amendment dated August 19, 1998, to the Employment
Agreement dated April 29, 1997, as amended, between the
Company and Howard R. Levine.

11 Statement Re: Computations of Per Share Earnings.

13 Annual Report to Stockholders for the fiscal year ended
August 29, 1998 (only those portions specifically
incorporated by reference herein shall be deemed filed).

21 Subsidiaries of the Company.

27 Financial Data Schedule

* Exhibit represents a management contract or compensatory plan.

(b) A report on Form 8-K, dated July 13, 1998, was filed during
the last quarter of the fiscal year ended August 29, 1998.
This Form 8-K reported a change in the Company's fiscal
reporting calendar to a more commonly used "Retail"
calendar. Accordingly, the Company's fiscal year 1998 ended
on August 29, 1998, and the fourth quarter and fiscal year
1998 had two less days than they otherwise would have.

As reported in the Form 8-K, the Company's future fiscal
years will now generally end on the Saturday closest to
August 31, but may deviate from this convention during
certain years by one week in order to coincide with the
standard "Retail" calendar. Previously, the Company's
fiscal year consisted of 12 calendar months ending
August 31.

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

Index

The consolidated financial statements of Family Dollar Stores, Inc., and
subsidiaries together with the report of PricewaterhouseCoopers LLP
incorporated in this report appear on the following pages of the Annual
Report to Stockholders for the fiscal year ended August 29, 1998.

Page of the
Annual Report

Report of Independent Accountants 17

Consolidated Statements of Income 17

Consolidated Balance Sheets 18

Consolidated Statements of Shareholders'
Equity 19

Consolidated Statements of Cash Flows 20

Notes to Consolidated Financial Statements 21-24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

FAMILY DOLLAR STORES, INC.
(Registrant)

Date November 19, 1998 By HOWARD R. LEVINE
HOWARD R. LEVINE
President (Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated.

Signature Title Date

LEON LEVINE Chairman of the Board and November 19, 1998
LEON LEVINE Director

HOWARD R. LEVINE President and Director November 19, 1998
HOWARD R. LEVINE (Chief Executive Officer)

R. JAMES KELLY Vice Chairman-Chief November 19, 1998
R. JAMES KELLY Financial and Administrative
Officer and Director
(Principal Financial
Officer)

GEORGE R. MAHONEY, JR. Executive Vice President November 19, 1998
GEORGE R. MAHONEY, JR. and Director

C. MARTIN SOWERS Senior Vice President- November 19, 1998
C. MARTIN SOWERS Finance (Principal
Accounting Officer)

MARK R. BERNSTEIN Director November 19, 1998
MARK R. BERNSTEIN

JAMES H. HANCE, JR. Director November 19, 1998
JAMES H. HANCE, JR.

JAMES G. MARTIN Director November 19, 1998
JAMES G. MARTIN