* FY EPS and sales forecasts are raised
* Q1 EPS 42 cents, tops Wall Street view of 40 cents
* December same-store sales up about 6 pct
* Shares rise as much as 17 pct (Adds comments from CEO and analyst; updates stock rise)
By Jessica Wohl
CHICAGO, Jan 7 Family Dollar Stores Inc FDO.N reported a jump in quarterly profit and raised its fiscal-year forecast on Wednesday as more shoppers headed to its discount stores, sending its shares up 17 percent.
Family Dollar caters to lower-income shoppers, many of whom make less than $30,000 a year and have been hit hard by the year-long U.S. recession.
Besides seeing its core shoppers spend more when they visit, Family Dollar is also attracting more "middle-ish income" customers, Chairman and Chief Executive Howard Levine said during a conference call.
"Today, customers of all income levels are looking for ways to stretch their budgets," Levine said.
Citing outside data, he said that "Family Dollar, as well as the dollar channel overall, is gaining share in this environment."
Family Dollar and other discounters such as Wal-Mart Stores Inc (WMT.N), Dollar Tree Inc (DLTR.O) and Dollar General have been doing well in the economic downturn, as consumers seek out low-priced necessities such as food and cleaning supplies.
At the same time, Family Dollar has reduced its exposure to more discretionary merchandise, like clothes and home goods.
"They're managing the risk in the business very well in a very difficult environment," said BMO Capital Markets analyst Wayne Hood, who has a "market perform" rating on the shares.
Family Dollar is also accepting food stamps at more locations as more Americans start to use them. Levine said that an estimated 14 million U.S. households relied on food stamps as of September 2008, up about 17 percent from a year earlier.
Family Dollar's profit for the fiscal first quarter, ended Nov. 29, rose to $59.3 million, or 42 cents per share, from $51.9 million, or 37 cents per share, a year earlier. The results topped analysts' average forecast by 2 cents per share and met the high end of the company's expectations.
BUCKS WIDER RETAIL TREND
While retailers in general are expected to post a decline of 1 percent in sales at stores open at least a year, or same-store sales, according to the latest Thomson Reuters data, Family Dollar bucked the trend [ID:nN06418196].
Sales rose 8 percent in the five weeks ended Jan. 3, with same-store sales up about 6 percent, driven by food and toys.
December's same-store sales were "artificially inflated," as JP Morgan analyst Charles Grom put it, because the period included the beginning of both December and January. Cash-strapped shoppers often head to stores when they receive paychecks or government checks at the beginning of the month.
Family Dollar's first-quarter sales rose more than 4 percent to $1.75 billion. Same-store sales rose 2.1 percent.
Seasonal markdowns and freight expenses were lower during the quarter, while insurance expense and occupancy costs were higher, the company said. Total inventories declined 2.7 percent to $1.09 billion. Excluding inventory in transit, inventory per store fell about 4.5 percent.
Family Dollar said it expects to earn $1.63 to $1.81 per share in the fiscal year ending on Aug. 29, up from a prior view of $1.58 to $1.78. Analysts had forecast $1.68.
The company expects full-year sales to rise 4 percent to 6 percent, up from a prior outlook of 3 percent to 5 percent. On a same-store basis, it forecast a sales gain of 2 percent to 4 percent; it previously called for a rise of 1 percent to 3 percent.
For the second quarter ending Feb. 28, Family Dollar expects to earn between 48 cents and 52 cents per share, with same-store sales up 3 percent to 5 percent.
Family Dollar shares were up $3.04 at $27.37 after trading as high as $28.49. The stock gained nearly 36 percent in 2008, compared with an overall market decline and an 18 percent rise for Wal-Mart.
BMO's Hood said some investors may have shorted the stock going into the quarter due to the strong run it had and a concern that Family Dollar was losing market share.
"The business models, for all of these companies, are stronger than they've ever been in their history," he said. (Reporting by Jessica Wohl; Editing by Derek Caney, Lisa Von Ahn, John Wallace and Gunna Dickson)