Dollar Tree profit jumps 20 percent

Source: Reuters

Date :11/25/2008 11:26:23 AM

Discount retailer Dollar Tree Inc said on Tuesday quarterly profit rose 20 percent as more customers came into its stores for low prices on basic items like food and cleaning supplies.

While other retailers have cut their sales and profit forecast for the crucial year-end holiday quarter, Dollar Tree, which sells most of its merchandise for $1, expects its momentum to continue into the fourth quarter as shoppers look to stretch limited budgets.

"We are gaining new customers and increasing market share," Dollar Tree Chief Executive Bob Sasser told analysts on a conference call. "Our customer traffic and transaction size has increased. More people are shopping our stores and they're buying more when they visit."

Shares rose 3.9 percent to $39.77 on Tuesday morning on the New York Stock Exchange, off an earlier high at $41.35.

Dollar Tree said net income rose to $43.1 million, or 47 cents per share, for its fiscal third quarter that ended November 1, from $35.9 million, or 38 cents per share, a year earlier.

Analysts on average had expected a profit of 44 cents a share, according to Reuters Estimates. Dollar Tree had forecast a profit in the range of 40 to 43 cents.

As the U.S. economy has weakened and job losses mount, Dollar Tree has said customers are "trading down" from other retailers and shopping in its stores for bargains on everything from beauty supplies to seasonal merchandise, such as Halloween candy.

But the retailer, which operates 3,572 stores in 48 states, has also cautioned that margins would be pressured this year by higher diesel prices and stronger demand for lower-margin products such as food.

Earlier, Dollar Tree said sales for the quarter rose almost 12 percent to $1.11 billion, while sales at stores open at least a year, or same-store sales, increased 6.2 percent.

HOLIDAY QUARTER FORECAST

For the current fourth quarter, it forecast sales of $1.38 billion to $1.42 billion, and it expects same-store sales to rise in the low- to mid-single digit range.

It also forecast earnings per share of $1.07 to $1.15 for the fourth quarter, while analysts on average are expecting $1.12 per share.

To navigate the tough economic climate, Dollar Tree said it plans to continue building cash, and it has no immediate plans for further stock buybacks.

It will also continue to invest in its Deal$ chain of stores, which carries items priced mainly between $1 and $5.

Dollar Tree said it still expects to open 212 new Dollar Tree Stores, 20 new Deal$ stores, and expand and remodel 86 stores this year.

(Reporting by Nicole Maestri, editing by Maureen Bavdek and Matthew Lewis)

NEW YORK (Reuters)