Family Dollar outlook tops Street, shares up

NEW YORK Wed Apr 7, 2010 1:40pm EDT

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NEW YORK (Reuters) - Family Dollar Stores (FDO.N) reported a higher-than-expected quarterly profit and forecast earnings above average Wall Street estimates as the discount retailer benefited from extended hours and sales of more profitable private-label items.

Family Dollar, whose shares rose nearly 4 percent, said it had lured more shoppers who spent more per transaction, sending sales at its stores open at least year up by 3.6 percent during the quarter.

The discounter, which sells most of its merchandise for $10 and less and typically draws shoppers with household incomes of $40,000 or less, said momentum continued into March. Same-store sales rose 11 percent last month, helped by good weather and an early Easter.

Family Dollar expects same-store sales to rise between 6 percent to 8 percent during the current quarter.

Family Dollar reported net income of $112.2 million, or 81 cents a share, for the second quarter ended February 27, up 33 percent from $84.1 million, or 60 cents per share, a year earlier.

Analysts on average were expecting earnings of 78 cents a share, according to Thomson Reuters I/B/E/S.

During the second quarter, Family Dollar's sales benefited from a new checkout system that accepts more types of payments, including food stamps and gift cards, a move the company said would continue to drive sales even as the economy improves.

"(The) last couple of years we've been at a structural disadvantage by not being able to accept food stamps in all our stores -- that disadvantage has been eliminated now," Levine said on a conference call, adding that the economy's recovery was still fragile and that consumers still look for discounts.

Family Dollar's strategy to accept more food stamps will help overall sales, an analyst said.

"The main positive effect is that food stamps draw foot traffic," said IBISWorld analyst Toon Van Beeck. "You have the ability to sell other items."

MORE HOURS, MORE FOOD STAMPS

Family Dollar forecast earnings of 71 cents to 76 cents a share for the third quarter, above analysts' expectations of 70 cents.

The company raised its full-year earnings forecast to between $2.48 and $2.58 a share, above the analysts' average estimate of $2.47.

Family Dollar is planning to further ramp up its higher margin private label items and its food offerings, saying they increase customer traffic.

Levine also said Family Dollar planned to expand further beyond staples, pointing to the strong performance of electronics and home furnishings during the quarter.

Despite the improving economy, IBISWorld's Van Beeck said he did not expect Family Dollar shoppers to migrate to more expensive department stores for now.

In February, Family Dollar said it expected to extend hours at most of its 6,600 stores by the end of that month to boost earnings. It also said it would beef up its sales of private-label goods, which typically offer higher margins.

Family Dollar's gross margins rose 1.7 percentage points to 35.4 percent as it took fewer markdowns and reduced inventory by 9.6 percent from a year earlier.

Shares of Family Dollar were up 3.8 percent at $39.22 in morning trading.

(Reporting by Phil Wahba in New York; additional reporting by Shradhha Sharma in Bangalore; Editing by Vinu Pilakkott and Derek Caney)

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