Family Dollar plans more stores as shoppers eye bargains

(Reuters) - Discount chain Family Dollar Stores Inc (FDO.N) forecast strong earnings and plans to ramp up store openings in the coming year as it looks to tap into demand from bargain-hungry consumers.

Family Dollar, which sells clothing and other goods that typically sell for $10 or less, has seen robust demand for food and other essentials in recent months, as customers focus more on the basic necessities in a sluggish U.S. economy.

The retailer, which posted a market-beating fourth quarter profit, plans to open 450-500 new outlets in fiscal 2012 -- a more than 50 percent increase over store openings in 2011.

"I think its largely to counter the fact that Dollar General, their main competitor, has gotten more aggressive as well," BB&T analyst Anthony Chukumba told Reuters.

Dollar General opened 301 new stores and remodeled or relocated 371 stores in its latest reported quarter.

Family Dollar, which operated 7,023 stores at the end of the fourth quarter, has worked on appealing to a more cautious clientele without raising prices too much.

It expects sales at stores open for at least a year, or same-store sales, to jump 4-6 percent in its current quarter.

Family Dollar, Dollar General Corp (DG.N) and stores that focus on $1 items, such as Dollar Tree Inc (DLTR.O), have wooed shoppers away from chains such as Wal-Mart Stores Inc (WMT.N) by offering more name-brand goods at lower prices.

Analyst Chukumba reckons that stores like Family Dollar are more convenient than supermarkets as they are located closer to their consumers and are easily accessible.

"I think they are gaining a lot of share from supermarkets, drug stores and convenience stores," analyst Chukumba said.

Shoppers often wind up paying more per ounce or serving size by buying an item at a dollar store instead of at Wal-Mart or other chains that offer larger packs. Still, when money is tight, a smaller container of milk or detergent seems like a bargain even if it costs more per ounce.

The world's largest retailer, Wal-Mart, which has posted nine straight quarters of declining same-store sales, is also trying to offer more lower-priced items to attract customers.

Family Dollar's board also authorized the repurchase of an additional $250 million in stock.

The Charlotte, North Carolina-based company's shares were trading up 2 percent at $55.45 on Wednesday on the New York Stock Exchange.

(Reporting by Meenakshi Iyer in Bangalore; Editing by Viraj Nair, Don Sebastian)