Discount retail chain Family Dollar Stores, Inc. (FDO) Wednesday reported a 33.3% year-over-year increase in profit for the second quarter, helped by a 6.4% increase in comparable store sales on double-digit sales growth of consumable merchandise reflecting higher customer traffic and transaction value. Earnings per share for the quarter surged and came in line with analysts' expectations, while quarterly sales grew 8.7% and narrowly topped consensus estimate. The company also provided third quarter earnings forecast, above analysts' projections, and lifted fiscal 2009 outlook.

The retailers have been struggling through one of the worst periods in recent history, on deteriorating economic climate, and eroding consumer confidence. The current economic trends of high prices for health care, food, insurance and mortgages, together with declining job security have been tough on retail customers with fewer discretionary dollars left in their budgets.

However, Charlotte, North Carolina-based Family Dollar has been witnessing an increase in bargain shoppers for groceries and other basic household products and turned to be a beneficiary at the time of recession.

The company noted that its multi-year focus on building and retaining great employee teams, improving merchandise quality, and making Family Dollar a more compelling place to shop, work and invest has positioned it well to serve its core customers better while also satisfying new customers.

In a statement, chairman and chief executive officer, Howard Levine said, In today's challenging economic environment, families of all incomes are looking for ways to save money. Our strategy of providing both value and convenience continues to resonate well with consumers, and, as a result, we continue to capture more shopping trips and gain market share.

Second Quarter Results

The Charlotte, North Carolina-based Fortune 500 company posted net income of $84.14 million or $0.60 per share for the second quarter, up about 33% from $63.30 million or $0.45 per share in the prior-year quarter.

The company was looking for earnings between $0.59 and $0.61 per share, while 16 analysts surveyed by Thomson Reuters expected earnings of $0.60 per share for the second quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter rose 8.7% to $1.99 billion from $1.83 billion in the same quarter last year, and narrowly topped fifteen Wall Street analysts' consensus estimate of $1.98 million.

Comparable store sales, or sales at stores open at least for one year, which is a key measure of growth for retailers, increased 6.4% for the second quarter, helped by double-digit sales growth of consumable merchandise. The company was looking for comparable store sales growth of 3% to 5%.

The company attributed higher comparable store sales to increases in the average customer transaction value and customer traffic, as measured by the number of register transactions.

Among other discount retailers, Chesapeake, Virginia-based Dollar Tree, Inc. (DLTR) in February posted an increase in fourth-quarter profit, as sales rose more than 6% stemmed from strong growth in consumer traffic. Comparable-store sales increased 6.2%. Fourth quarter net income jumped to $105.2 million or $1.15 per share from $94.7 million or $1.04 per share a year ago. Sales were up 6.8% at $1.39 billion, compared to $1.30 billion in the year-ago quarter.

Segmental Details

Consumables net sales grew 15.2% to $1.21 billion from prior year's $1.05 billion. Sales for home products edged up 1.4% to $300.60 million form the year-ago quarter. Apparel and accessories sales dropped 10.1% to $214.88 million from the prior-year quarter. Seasonal and electronics net sales totaled $267.32 million, up 8.0% from the same quarter last year.

Other Metrics

Operating profit for the second quarter rose to $134.09 million or 6.7% of net sales, from $96.46 million or 5.3% of net sales in the prior-year quarter, while selling, general and administrative expenses was $537.22 million or 27.0% of net sales, up from $502.62 million or 27.4% of net sales, in the year-ago quarter.

Gross profit for the quarter was $671.30 million, higher than $599.08 million in the prior-year quarter, while gross margin percentage grew to 33.7% from 32.7% in the year-ago quarter.

Gross margins improved in the quarter due to higher purchase mark-ups as well as lower seasonal markdowns, inventory shrinkage, and freight expense, partially offset stronger sales of lower-margin consumable merchandise.

The company ended the second quarter with cash and cash equivalents of $299.29 million, compared to $79.94 million at end of the prior-year quarter.

Family Dollar's chain of self-service retail discount stores caters to low to lower-middle income consumers. Beginning with one store in 1959, the company had 6,643 stores as of February 28, 2009, including 57 new stores opened in the second quarter.

Six-Month Highlights

For the first six months of fiscal 2000, Family Dollar posted net income $143.43 million or $1.02 per share, up from $115.25 million or $0.82 per share in the prior-year period.

Net sales for the year-to-date period rose to $3.75 billion from $3.52 billion in the same period last year.

Outlook

For the third quarter of fiscal 2009, Family dollar anticipates earnings in a range of $0.54 and $0.58 per share. Analysts expect the company to report earnings of $0.50 per share for the second quarter.

The company also expects net sales to increase between 7% and 9% from last year, with a comparable store sales increase in a range of 5% to 7%.

For fiscal 2009, Family Dollar lifted its earnings forecast range to $1.90 to $2.00 per share from prior range between $1.63 and $1.81 per share. Analysts project earnings of $1.90 per share for the year.

The company also currently expects net sales to increase 5% to 7% from last year and comparable store sales to grow 3% to 5%. Earlier, projected net sales growth was 4% to 6% and comparable store sales growth of 2% to 4%.

Stock Quote

In Wednesday's regular trading session, FDO is currently trading at $34.40, up $1.74 or 5.33% on a volume of 76,500 shares. In the past 52-week period, the stock has been trading in a range of $18.43 to $34.06.

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