Family Dollar Stores reported a higher-than-expected quarterly profit and forecast earnings above Wall Street estimates as the discount retailer benefited from extended hours and sales of more profitable private-label items.
Family Dollar said it had lured more shoppers who spent more per transaction, sending sales at its stores open at least year up by 3.6 percent during the quarter.
The discounter, which sells most of its merchandise for $10 and less and typically draws shoppers with household incomes of $40,000 or less, said momentum continued into March. Same-store sales rose 11 percent last month, helped by good weather and an early Easter.
Family Dollar expects same-store sales to rise between 6 percent to 8 percent during the current quarter.
The company's efforts to broaden its merchandise assortment should lead to market share gains, Chief Executive Officer Howard Levine said in a statement.
Family Dollar reported net income of $112.2 million, or 81 cents a share, for the second quarter ended February 27, up 33 percent from $84.1 million, or 60 cents per share, a year earlier.
Analysts on average were expecting earnings of 78 cents a share, according to Thomson Reuters I/B/E/S.
Family Dollar forecast earnings of 71 cents to 76 cents a share for the third quarter, above analysts' expectations of 70 cents.
The company raised its full-year earnings forecast to between $2.48 and $2.58 a share, above the analysts' average estimate of $2.47.
During the second quarter, Family Dollar's sales benefited from a new checkout system that accepts more types of payments, including food stamps.
"The main positive effect is that food stamps draw foot traffic," said IBISWorld analyst Toon Van Beeck. "You have the ability to sell other items" and make up for low margins on food sales.
Despite the improving economy, Van Beeck said he did not expect Family Dollar shoppers to migrate to more expensive department stores for now, allowing the retailer's sales to keep rising robustly.
In February, Family Dollar said it expected to extend hours at most of its 6,600 stores by the end of that month to boost earnings. It also said it would beef up its sales of private-label goods, which typically offer higher margins.
Family Dollar's gross margins rose 1.7 percentage points to 35.4 percent as it took fewer markdowns and reduced inventory by 9.6 percent from a year earlier.
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