Family Dollar Stores (NYSE: FDO) reported fourth-quarter and fiscal year earnings for 2009, both of which came in healthy enough to show the strength that has marked the deep discounter throughout this recession. While many mid-level department stores and upscale retailers have been hammered, and even some discounters have struggled, many retailers are only now looking to recover, but Family Dollar kept growing earnings, however slowly.

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Year-End Results
For the year ending August 29, 2009, Family Dollar increased its net income from $233.1 million in fiscal 2008 to $291.3 million. This comes out to $2.07 per share in fiscal 2009 compared to $1.60 in fiscal 2008. Revenue increased in 2008 from $6.964 billion to $7.401 billion in 2009. Even critics have to grudgingly admit this is a good performance given the economy's funk.

For the recently ended fourth quarter of fiscal 2009, net income rose from $53.1 million in 2008's fourth quarter to $60.1 million in this year's same quarter, on $1.811 billion in revenue, compared to $1.764 billion in sales last year's same quarter. Earnings per share rose from 38 cents to 43 cents in the same period. Wall Street was less enthusiastic about these numbers.

The Street Takes a Dim View
Much of the commentary from Wall Street observers regarded Family Dollar's results as less than impressive. While the Street liked the fiscal year numbers, they were less warmed by the tepid 2.6% sales increase in the fourth quarter, which they regarded as squeezed out by cost-cutting and canny merchandising, rather than any recapture of the elusive and spending-shy consumer. The heart of the reaction is that Wall Street doesn't feel Family Dollar can necessarily keep this up when the recovery comes because the nature of consumer spending could shift away from low-priced consumables.

Comparison Shopping
Other discounters face this same potential dilemma, whether they have sailed or struggled through the recession. Costco (NYSE: COST) recently had a mixed earnings report and still shows signs of struggling through the end of the recession, though there are also encouraging signs of customers beginning to come back.

99 Cents Only Stores
(NYSE: NDN) in its recent report showed a similar sales increase to Family Dollar's, a 2.2% increase for its total sales in its fiscal 2010 second quarter, at $324.7 million, up from $317.8 million the same quarter a year ago, while reporting a 2.3% increase in its same store sales. 99 Cents Only describes itself as "an extreme value retail store," and its management noted that many middle- and upper-income consumers have found their way into the stores for the first time during the recession.

Is this a sustainable trend? Fellow discounter Dollar Tree Stores (Nasdaq: DLTR) earnings estimates are, even if whittled down, projecting eye-popping increases over the next couple of years. Big Lots (NYSE: BIG) also has been singularly impressive, a discount star, and is expected to continue its positive earnings momentum right into the economic recovery.

Family Dollar Outlook
The heart of the argument that Wall Street has with the discounters' prospects is contained in the idea that the recession fling will be over soon for Family Dollar and the others, and the consumer will migrate to higher-line stores. We're not so sure. While this may have been the pattern in the past, this recession may be different, as it may leave deep scars on the consumer in its wake. This is what propels the outlook of Family Dollar and some of the other discounters. Some consumers, having liked what they experienced in value shopping at the discounters, will find a place for that in 2010 and beyond, maybe a bigger place than Wall Street pundits realize. Investors might want to look at Family Dollar and the other discounters with new eyes. (For more, see Analyzing Retail Stocks.)

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