Family Dollar Profit Shrinks as Consumers Face Tough Choices

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Family Dollar posted a smaller quarterly profit Wednesday and said it expects customers to remain under financial pressure and hold back on purchases that aren't absolutely necessary.

Sales rose 9 percent to $2.57 billion, while sales at stores open at least a year, or same-store sales, rose 2.9 percent in the quarter ended June 1. The discount chain expects same-store sales to rise 2 percent this quarter.

Family Dollar Stores (FDO) earned $120.9 million, or $1.05 a share, down from $124.5 million, or $1.06 a share. That was two cents better than expected by Wall Street analysts, according to Thomson Reuters I/B/E/S.

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The discount chain's gross profit margin fell 1.1 percentage points to 34.7 percent of sales, as shoppers gravitated toward buying everyday products such as food and cigarettes, which have lower profit margins than items like short-sleeved shirts and tank tops.

"Our customers have been forced to make spending choices between basic needs and wants," Chief Executive Howard Levine said in a statement.

Family Dollar's gross profit margin was also hurt by markdowns. But inventory per store was down 1 percent compared to a year earlier, easing Wall Street fears that the 7,800-store chain had too much merchandise on hand on which it might have cut prices.

Shares were up 2 percent to $65.20 in premarket trading.

In April, the discount chain cut its annual profit forecast for the second time due to expectations its customers would hold off on discretionary spending.

On Tuesday, Family Dollar said it now expects a profit of $3.77 to $3.82 a share for the fiscal year ending this quarter, a range whose midpoint is below that of its earlier forecast of $3.73 to $3.93 a share.