UPDATE 2-Dollar Tree raises full-year profit forecast after 1st-qtr beat
* First-quarter earnings $0.59/share vs est $0.57
* Sales $1.87 bln, in line with analyst expectations
* Forecasts 2nd-quarter profit at $0.52-$0.57/share
* Raises full-year earnings to $2.61-$2.77/share
* Shares rise 5 pct
By Arpita Mukherjee
May 22 (Reuters) - Dollar Tree Inc reported a stronger-than-expected quarterly profit and raised its full-year earnings forecast on Thursday as the value retailer more than holds its own against intensifying competition from Wal-Mart and Target.
Dollar Tree shares, which gained about 19 percent this year up to Wednesday's close, rose 5 percent to $51.00 on the Nasdaq.
U.S. shoppers have been looking for bargains as higher payroll taxes cut take-home pay and unemployment levels trend at a four-year low.
"While the company likely felt some impact from the extreme pressures that lower-income consumers are under, we continue to believe the Dollar Tree has a significantly broader customer base than other companies in the 'dollar' space," RBC Capital Markets analyst Scot Ciccarelli wrote in a note.
Dollar Tree's discretionary business, which it calls its "differentiating factor", expanded faster than consumables in the first quarter. It sold more in stationery, candy, party supplies and healthcare products.
"We believe that our model was right for all times ... You can splurge at Dollar Tree and you can still balance your budget," CEO Bob Sasser said on a conference call with analysts.
The company, which competes with Dollar General Corp and Family Dollar Stores Inc, opened 94 stores in the first quarter, while relocating and expanding 16 existing stores. The company operated 4,763 stores as of May 4.
"Dollar Tree's (first-quarter) results were slightly better than we expected, which we find all the more encouraging given the relatively weak results posted recently by big-box discounters Wal-Mart and Target," BB&T Capital Markets analyst Anthony Chukumba wrote in a note to clients.
Target Corp cut its full-year profit forecast earlier this week, and posted disappointing sales in the first quarter as a chilly start to spring kept shoppers from buying seasonal items like clothing.
Wal-Mart Stores Inc also posted weaker-than-expected quarterly earnings earlier this month and said its profit for this quarter might miss analysts' forecast.
Dollar Tree, which sells many items for $1.00 or less at its namesake chain and smaller Deal$ stores, raised its full-year earnings forecast to $2.61-$2.77 per share from $2.54-$2.74.
Analyst on average were expecting $2.79 per share, according to Thomson Reuters I/B/E/S.
The company is also bullish about development of new retail formats and expansion in Canada.
The company's gross margin increased to 35.2 percent in the first quarter from 35 percent a year earlier.
Net income rose to $133.5 million, or 59 cents per share, from $116.1 million, or 50 cents per share.
Revenue rose 8.3 percent to $1.87 billion.
Analysts on average had expected earnings of 57 cents per share on revenue of $1.87 billion in the first quarter.
The company said it expected to earn 52 cents to 57 cents per share in the second quarter. Analysts expected 57 cents.
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