UPDATE 4-Family Dollar profit beats Wall St view; shares up

* Q3 EPS $0.62 vs Wall St view $0.59

* Sees Q4 EPS in line or above market view

* Seeing increase in shoppers using food stamps

* Shares rise 11 pct (Adds company comment; updates stock price)

By Nicole Maestri

SAN FRANCISCO, July 8 (Reuters) - Family Dollar Stores Inc (FDO.N) reported a better-than-expected 36 percent jump in quarterly profit, sending its shares up 11 percent, as more shoppers scoured its aisles for low prices on food, shampoo and household cleaners.

The retailer, which prices most of its merchandise under $10, also raised its profit forecast for the current quarter, giving a range that should meet or beat analysts' estimates.

Family Dollar has been attracting more middle income consumers, and winning more business from its core lower-income shoppers as families -- regardless of income -- look to save money, Chairman Howard Levine said on a conference call.

It is now revamping its stores, giving more room to fast-moving items like food and paper towels, and cutting space for items like clothes, which are languishing.

The retailer is also accepting food stamps as payment in more locations and is sprucing up stores. Levine said those efforts will raise short-term expenses, but increase its appeal to shoppers in the long run.

Family Dollar earned $87.7 million, or 62 cents per share, in the third quarter ended May 30, up from $64.7 million, or 46 cents per share, a year earlier. Analysts, on average, expected profit of 59 cents per share, according to Reuters Estimates.

The stronger-than-expected results, along with its expectation for June same-store sales to rise 2 percent, boosted its shares along with those of competitors, like Dollar Tree Inc (DLTR.O) and 99 Cents Only Stores NDN.N.

Family Dollar stock rose $3.08 to $30.83, while Dollar Tree advanced $2.92 to $43.51 and 99 Cents Only rose 43 cents to $13.48 early Wednesday afternoon.

FOOD STAMPS HELPING SALES

Discounters such as Family Dollar, Wal-Mart Stores Inc (WMT.N) and Dollar Tree have been attracting more shoppers in the recession as consumers seek out low-priced essentials like food, paper towels and beauty products in their stores.

Family Dollar, which operates more than 6,600 stores, has also added 200 new food products, like Triscuit crackers and Kraft salad dressing.

"They've got really good traffic trends right now as consumers look for value-oriented offerings and obviously, that's Family Dollar's sweet spot," said Edward Jones analyst Matt Arnold.

Roughly 60 percent of Family Dollar's stores now accept food stamps, up from 25 percent a year ago. All of its stores are slated to accept the payment form by spring of 2010.

Family Dollar said it has seen a jump in shoppers using food stamps in its stores since April when the program was expanded under the economic stimulus law signed by President Barack Obama.

Its third-quarter sales rose more than 8 percent to $1.84 billion, while sales at stores open at least a year, or same-store sales, increased 6.2 percent.

It estimated its June same-store sales rose about 2 percent. Telsey Advisory Group analyst Joseph Feldman said that was a strong result considering Family Dollar's year-ago sales were helped by shoppers spending tax rebate cash in its stores.

For the fourth quarter ending on Aug. 29, it expects net sales to increase 4 percent to 6 percent, and the retailer forecast a rise of 2 percent to 4 percent in same-store sales.

The retailer now expects fourth-quarter earnings of 39 cents to 43 cents per share, while analysts on average were expecting 39 cents. It had previously said it expected fourth-quarter earnings of 34 to 40 cents a share.

A year ago, Family Dollar got a benefit in its fourth quarter from the U.S. government's economic stimulus package that distributed about $100 billion in tax rebates to 130 million households.

(Reporting by Nicole Maestri; Additional reporting by Nivedita Bhattacharjee in Bangalore; Editing by Gopakumar Warrier, Lisa Von Ahn, Matt Daily and Richard Chang)