UPDATE 4-Dollar Tree profit up 11 pct, sees market shr gain

Wed Feb 25, 2009 12:41pm EST

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By Nicole Maestri

NEW YORK, Feb 25 (Reuters) - Dollar Tree Inc (DLTR.O) reported a better-than-expected 11 percent rise in quarterly profit on Wednesday and said it gained market share as customers seek out its rock-bottom prices amid the recession.

The retailer, which sells most of its merchandise for $1, said it will open 210 new namesake stores this year and will add more freezers and coolers inside its locations as frugal shoppers focus on buying necessities like food.

"As we enter 2009, we know that our customers are under intense pressure," said Dollar Tree Chief Executive Bob Sasser on a call with analysts. "We also know that they will find no better place to stretch their dollars than at Dollar Tree."

The results stand in contrast to other retailers, including J.C. Penney Co Inc (JCP.N), Target Corp (TGT.N) and Saks Inc SKS.N, which have posted steep drops in quarterly profits as consumers, facing a prolonged recession and mounting job losses, put the brakes on spending.

Dollar Tree's profit rose to $105.2 million, or $1.15 per share, for its fiscal fourth quarter ending Jan. 31, from $94.7 million, or $1.04 per share, a year ago.

Analysts, on average, had been expecting it to earn $1.13 per share, according to Reuters Estimates.

"They continue to operate very well and their guidance was solid," said Joseph Feldman, a retail analyst with Telsey Advisory Group, of their quarterly results. "It's better than what you are getting from most people. ...they're very well positioned for this environment."

SALES GAINS

Earlier this month, Dollar Tree said quarterly sales rose almost 7 percent to $1.39 billion, while sales at stores open at least a year, or same-store sales, increased 2.2 percent.

Dollar Tree, which operates 3,591 stores, has said customers are "trading down" from other retailers to its stores, searching for bargains on everything from beauty supplies to seasonal merchandise, like Christmas decorations.

Last year, it added freezers and coolers to 135 Dollar Tree stores, allowing it to sell frozen and refrigerated food in 1,107 stores. This fiscal year, it will add freezers and coolers to at least 150 new stores.

It expects to open 210 new Dollar Tree stores, 25 new Deal$ stores and relocate 90 stores this year.

While Dollar Tree has experimented with selling items that cost more than $1 in its namesake stores, Sasser said the retailer will end that strategy. Instead, it will focus on selling items that cost more than $1 at its Deal$ store chain, which carries items priced mainly between $1 and $5.

"It was distracting to the customer," he said of the test.

For its first quarter, Dollar Tree expects sales of $1.13 billion to $1.16 billion, a low-to mid-single digit rise in same-store sales, and earnings per share of 49 cents to 54 cents.

Analysts, on average, are expecting sales of $1.139 billion and earnings of 52 cents per share.

For the full year, it expects sales of $4.96 billion to $5.09 billion, a low to low-mid single digit gain in same-store sales, and earnings per share of $2.55 to $2.75. It said the forecast assumes it does not buy back any shares in the year.

Analysts expect sales of $4.99 billion on earnings of $2.71 per share.

The company forecast capital expenditures of $135 million to $145 million for the fiscal year.

Shares of Dollar Tree were down 1 percent to $35.71 in early afternoon trading amid a broad decline in stocks, after earlier trading 2 percent higher. (Reporting by Nicole Maestri; Editing by Derek Caney, Dave Zimmerman, Tim Dobbyn)

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