Family Dollar Stores (NYSE:FDO) continues to prosper in this tough economy as frugal and cash strapped consumers continue toward its ultra discounted merchandise. For the company's fiscal 2010 full year, net income per diluted share for the year ended August 28, 2010 increased 26.6% to $2.62 compared with $2.07 for the year ended August 29, 2009. Net income for the year increased 23.0% to $358.1 million compared with net income of $291.3 million in fiscal 2009. In addition, sales for fiscal 2010 were $7.9 billion, or 6.3% above sales of $7.401 billion for fiscal 2009. Sales in comparable stores increased 4.8%, due in part to higher customer traffic.

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Let the Good Times Roll
The frugal bug has firmly hit consumers as result of the recession. In addition to a strong year, Family Dollar had a strong fourth quarter which suggests that its keeping its momentum going. Sales for the fourth quarter of fiscal 2010 were $1.957 billion, an 8.0% increase of sales of $1.811 billion for the fourth quarter of fiscal 2009. Sales in comparable stores increased 6.1%. The environment has been good to the ultra discount retailers, companies with names like Dollar General (NYSE:DG) and Dollar Tree (Nasdaq:DLTR) benefit from a consumer attracted to the discounts that the names imply. All have had an excellent 2010 so far. Both Family Dollar and Dollar Tree shares are up over 50%, while shares in Dollar General are up 30%, significantly outperforming the S&P 500 index.

Where's Wal-Mart?
To the surprise of many, the nation's largest discount retailer, Wal-Mart (NYSE:WMT) has not been a beneficiary of this optimism in the discount sector. Year to date, Wal-Mart shares are flat, underperforming both the broad market and the discount retail industry. Today, Wal-Mart shares trade for under 14 times earnings and yield 2.3%, while the broad group of ultra discount chains trade from 17 to over 20 time's earnings. To be sure, Wal-Mart sells over $400 billion worth of merchandise annually; the law of large numbers makes it difficult to grow sales as fast as the smaller players. So despite its apparent valuation discount, if names like Family Dollar continue to perform like they have, investors are probably going to hold them in higher regard.

Here to Stay
Despite the economic recovery from the abyss of 2008 and 2009, consumers seem to have formed permanent habits that are geared towards more visits to the local dollar store. Such habits aren't easy to break and could benefit names like Family Dollar for a while yet. (For more, see Family Dollar Rides Another Bullish Quarter.)

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Tickers in this Article: FDO, DG, DLTR, WMT

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