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Stretching Family Dollar

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Third quarter earnings beat analyst estimates.

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Retailers are getting hammered these days, with one exception: Those in the deep discount space are drawing in a larger number of newly strapped consumers, particularly in the wake of those economic stimulus checks.

Family Dollar Stores (FDO) is one example of this trend: The North Carolina-based company reported a 7.1% increase in net income for its third quarter, with earnings of $64.7 million or 46 cents a share, as compared with the $60.4 million or 40 cents a share in the same period last year.

Family Dollar also increased its earnings target for the coming year. It's now projecting $1.58 to $1.63 a share, along with store sales growth of 4% to 6% in the fourth quarter, compared to a 1% increase last year. Given the fact that the company had previously given guidance of between $1.50 and $1.60 a share, this could cause the sell side to increase its earnings estimates as well, driving the share price still higher.

It's important to note that Family Dollar's third-quarter operating margins came in at 5.9%, an uptick of about 30-basis points from the 5.6% it turned in for the comparable period last year.

Family Dollar's outlook is quite a bit brighter than that of its competitors: In late May, Dollar Tree (DLTR) disseminated second quarter earnings guidance of 33 to 36 cents a share - particularly disappointing, in light of the fact that analysts had been expecting at least 36 cents a share.

Similarly, 99 Cents Only Stores (NDN) reported a fourth-quarter loss of $4.4 million or 6 cents a share in early June, whereas analysts had been expecting a profit of 1 cent per share. Its revenue number was also reportedly below Wall Street's expectations.

Family Dollar closed at $21.95, up $1.66 or 8.18%.
No positions in stocks mentioned.

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