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Pershing Square Capital Management, L.P. The analyses and conclusions of Pershing Square Capital Management, L.P.


  1. ����������������� ������������ Pershing Square Capital Management, L.P.

  2. ���������� The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Square’s conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates have invested in common stock of Family Dollar Stores Inc. (“FDO”). Pershing Square manages funds that are in the business of trading – buying and selling – securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding FDO. Pershing Square may buy, sell, cover or otherwise change the form of its investment in FDO for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

  3. �������������� Ticker: FDO Stock Price: $54 Market Cap: ~$6.6B EV: ~$6.7B FY2012 P/E¹: 14x (August FY) ________________________________________________ Note: ¹Pershing Square EPS esimtate of $3.88 2 All stock prices and financials are as of May 24, 2011 close

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  5. �������������������� ������������� ��� ������� ��������� ����������� � ���"���������� � ������������� � /�#������$��� � �!�"���������� �����'������������ �������%�&��� ����$������(��� � ������������������ ��$���� ����������������'� �������� � �)*"������ ��������'� ���$���������� ���'�$�� � ����������������� � �!�"���������� � 0������(������ ����������� ����� � �))"�������� ����&� ��������$����� ������ � �))"��������� � 1����(��������� � �!�"������������� � +��������$����� ��)����'�&������ ��������������� ������������� ����� ��#����$������ '��$���������� ,-.� 4

  6. ����������������� ���������!�"���������� Dollar stores offer pricing comparable to Wal-Mart in a more convenient format. Dollar stores offer pricing comparable to Wal-Mart in a more convenient format. Lower income customers use dollar stores as weekly fill-in trips between Lower income customers use dollar stores as weekly fill-in trips between supercenter destination shopping. The average FDO store visit is 8 minutes supercenter destination shopping. The average FDO store visit is 8 minutes Concept Price Index Store Size ('000) Dollar Stores 100 7 Drug Stores ~120 40 Grocers ~115 40 Mass Merchants ~95 125 Wal-Mart and dollar stores can coexist. Management believes FDO has ~3% Wal-Mart and dollar stores can coexist. Management believes FDO has ~3% share of their core customer’s wallet compared to WMT’s ~35% share share of their core customer’s wallet compared to WMT’s ~35% share 5

  7. #�����$�������%������ High unit and same store sales growth have led to significant share gains for High unit and same store sales growth have led to significant share gains for the dollar store channel the dollar store channel ��&�����������#������#������'�"����%������#�����(%�����)�*+���),- 2�$������ 2�$������ ________________________________________________ 6 Source: Bernstein, 2009

  8. "����������#����#�����#�����$����� Family Dollar, like other dollar store retailers, has consistently grown SSS over Family Dollar, like other dollar store retailers, has consistently grown SSS over the last decade even during recessions the last decade even during recessions #����#�����#�����$����� 9.0% 8.0% 7.0% 2�$������ 2�$������ 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ________________________________________________ Note: Years are Fiscal Year Ending August 7

  9. #�������. Consumables make up a growing percentage of Family Dollar’s sales volume. Consumables make up a growing percentage of Family Dollar’s sales volume. Growth in consumables is responsible for most of FDO’s recent traffic and Growth in consumables is responsible for most of FDO’s recent traffic and same-store sales growth same-store sales growth "������&����#�������. #�����&��"���)��� Seasonal & 67.0% Electronics, 11% Consumables, 65% Apparel and Accessories, 65.0% 11% 63.0% 61.0% Home Products, 13% 59.0% 57.0% 2007 2008 2009 2010 8

  10. #�&���������/��)01����$����������������� The three major dollar store retail chains (Family Dollar, Dollar General, Dollar The three major dollar store retail chains (Family Dollar, Dollar General, Dollar Tree) operate ~20k units today. We believe there is room for 10k to 12k Tree) operate ~20k units today. We believe there is room for 10k to 12k additional stores¹ or a decade of store growth at the current industry build rate additional stores¹ or a decade of store growth at the current industry build rate ________________________________________________ Source: ¹For research see Morgan Stanley, 2010; Bernstein, 2009; Dollar General management comments 9 Map: UBS, 2010

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  12. 2����������%����������"������ Family Dollar has a strong track record of earning high returns on capital Family Dollar has a strong track record of earning high returns on capital ��������%���������"�������(����������������3��)�������- 30.0% 25.0% 3�"�1��� 20.0% 15.0% 10.0% 5.0% 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ________________________________________________ Note: Years are Fiscal Year Ending August ROIC Defined as: (Taxed EBIT)/Average (Assets – Cash – A/P – Accrued Expenses) 11

  13. #�������!��0�������!�"������������������#�����)� In FY2011, Family Dollar plans to invest $300-$350mm of capex and repurchase In FY2011, Family Dollar plans to invest $300-$350mm of capex and repurchase nearly $750mm of stock nearly $750mm of stock � New Store Growth (~$60mm Capex, ~$15mm SG&A): � 300 new store openings and 80-100 store closings, 3% net growth � Long-term, management expects to grow store count 5-7% annually � Store Renovation Program (~$60mm Capex, ~$30mm SG&A): � Over 800 stores in FY2011 � Going forward, management expects to renovate 1,000+ stores per year � Share Repurchases & Dividends: � Management has committed to buyback $750mm of shares by fall 2011 � FDO raised its dividend this year to $.72/share ($85mm) 12

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