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Family Dollar Q3 Profit Edges Down, But Tops View, Tightens 2013 Outlook

correction: corrects tenth paragraph to say, the company's outlook is for fiscal 2013

Discount retailer Family Dollar Stores, Inc. (FDO: Quote) reported Wednesday a profit for the third quarter that edged down from last year, despite sales growth, reflecting stronger sales of lower-margin consumables. Comparable store sales also grew 2.9 percent. Earnings per share for the quarter topped analysts' expectations by two cents, while quarterly revenues matched their estimates. The company also narrowed its earnings guidance range for the full-year 2013. "This morning we reported sales and earnings results for the third quarter that were at the upper-end of our guidance. Our consumables sales remained strong and we continued to gain market share. However, our discretionary sales remained challenged as our customers have been forced to make spending choices between basic needs and wants," Chairman and CEO Howard Levine said.

The Matthews, North Carolina-based company reported net income of $120.94 million or $1.05 per share for the third quarter, down from $124.54 million or $1.06 per share in the prior-year quarter.

On average, 29 analysts polled by Thomson Reuters expected the company to report earnings of $1.03 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter increased 9 percent to $2.57 billion from $2.36 billion in the same quarter last year, and matched twenty-seven Wall Street analysts' consensus estimate of $2.57 billion.

Comparable store sales for the quarter increased 2.9 percent on higher customer traffic and increase in the average customer transaction value.

The company noted that sales growth was strongest in the consumables category, which increased 14.8 percent, driven primarily by strong growth in food, health and beauty aids, and tobacco.

Operating margin for the quarter contracted 90 basis points to 34.7 percent from last year as gross margin declined 110 basis points, partially offset by a 30 basis points improvement in selling, general and administrative expenses as a percentage of net sales.

Looking ahead to the fourth quarter, Family Dollar expects earnings between $0.82 and $0.87 per share, while analysts project earnings of $0.85 per share. The company also expects comparable store sales to increase around 2 percent.

For fiscal 2013, the company now projects earnings in a range of $3.77 to $3.82 per share, compared to the prior estimate in the range of $3.73 to $3.93 per share. However, the outlook continues to assume comparable store sales growth of 3 to 4 percent. Street is currently looking for fiscal 2013 earnings of $3.77 per share.

Additionally, the company noted that it expects that sales in more discretionary categories will continue to be pressured.

"Consistent with market trends, we expect that our customers will continue to face financial headwinds. We are adapting accordingly, and we are focused on stabilizing gross margin, controlling expenses, improving inventory productivity, and driving greater operational efficiencies. I am confident that we remain well positioned for long-term profitable growth," Levine added.

FDO closed Tuesday's regular trading session at $63.95, down $0.43 on a volume of 1.31 million shares. In the past 52-weeks, the stock traded in a range between $54.06 and $72.54.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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