UPDATE 3-Family Dollar profit down, cuts year forecast

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By Nicole Maestri

NEW YORK, April 4 (Reuters) - Family Dollar Stores Inc (FDO.N: Quote, Profile, Research, Stock Buzz) reported a 30 percent drop in quarterly profit on Friday as cash-strapped shoppers limited their discretionary purchases, and the discount retailer once again cut its full-year earnings forecast.

Family Dollar, which prices most of its merchandise below $10, also said it now expects sales at stores open at least a year, a key retail gauge known as comparable store sales, to fall 4 to 5 percent in March. That is a steeper decline than its previous view for a drop of 2 to 4 percent.

"Our customers continue to react to the current economic environment by limiting their discretionary spending," said Howard Levine, chairman and chief executive, in a statement.

Net income fell to $63.3 million, or 45 cents per share, for the fiscal second quarter, ended March 1, from $90.5 million, or 60 cents per share, a year ago.

Analysts, on average, were expecting it to earn 42 cents per share, according to Reuters Estimates. In January, Family Dollar had forecast per-share earnings of 40 to 44 cents for the period, which at the time was below analysts' average estimate of 57 cents.

"Deteriorating economic conditions resulted in softer-than-expected sales in discretionary categories, which constrained revenue growth and pressured gross margin more than we had planned," said Chief Financial Officer Kenneth Smith on a conference call with analysts.

Sales declined 6 percent to $1.83 billion in the quarter, which contained one fewer week of sales than a year earlier.