UPDATE 2-Family Dollar profit in line; this quarter may be weak

Wed Oct 3, 2012 9:38am EDT

* Profit of $0.75 a share before charge meets Wall St view

* Sales up 10.8 percent; same-store sales up 5.4 percent

* Sees 2013 earnings per share $4.10-$4.40, Wall St view is $4.22

* Shares up 2.6 percent

By Jessica Wohl

Oct 3 (Reuters) - Family Dollar Stores Inc's reported a higher quarterly profit on Wednesday that met analysts' estimates, as increased sales of food and other basic goods brought shoppers into the stores and did not pressure margins as much as expected.

Shares of the discount retailer rose nearly 3 percent even as its forecast range for the current quarter suggests it could miss Wall Street expectations.

Family Dollar forecast earnings of 69 cents to 78 cents per share for its first quarter, which began on Aug. 26. The analysts' average estimate is 77 cents, according to Thomson Reuters I/B/E/S.

The company, which sells a variety of general merchandise, is boosting its growth by opening more stores and by adding more products to its shelves. To compete with Dollar General Corp and other retailers, it now sells more food, health and beauty items, and it added tobacco products, magazines and gift cards to its stores during its just-ended fiscal year.

The growth plans, which include building more distribution centers, are raising costs. Family Dollar forecast fiscal 2013 capital expenditures of $600 million to $650 million, compared with $603.3 million in 2012 and $345.3 million in 2011.

"As an investor, you may not even want to think about Family Dollar until the middle of the year, until you start to see some of the better trends," said Brian Sozzi, chief equities analyst at NBG Productions.

GROSS MARGIN UPSIDE

Family Dollar said it had earned $80.9 million, or 69 cents per share, in the fourth quarter ended on Aug. 25, up from $79.8 million, or 66 cents per share, a year earlier.

Excluding a charge for a litigation settlement with some workers, earnings of 75 cents per share met Wall Street expectations, according to Thomson Reuters I/B/E/S.

Sales rose 10.8 percent to $2.36 billion, in line with analysts' estimates. Sales at stores open at least a year rose 5.4 percent.

Sales of "consumables" like food and beauty products, by far the chain's largest category, rose 16.1 percent. Sales of home products, clothing and accessories, which typically carry higher margins, declined in the quarter.

Gross profit dipped to 33.8 percent of net sales from 34 percent a year earlier.

"Gross margin eroded only 17 basis points, far better than our expectations of a 45-basis-point hit, perhaps a reflection of tight control over discretionary inventories and markdowns," said Guggenheim analyst John Heinbockel.

Family Dollar said it expected to earn $4.10 to $4.40 in the current fiscal year, which will include an extra week in the second quarter. Analysts call for a profit of $4.22 per share.

The company expects same-store sales to rise 4 percent to 6 percent in both the first quarter and the fiscal year.

Family Dollar's shares were up 2.6 percent at $67.74 in early trading.