Deep discount retailer Family Dollar (NYSE:FDO) reported stronger sales and profits in the second quarter of fiscal 2012. Family Dollar's net profit rose to $136.4 million, or $1.15 a share from $123.2 million, or 98 cents a share, a year earlier. Sales at Family Dollar rose 8.6% to $2.5 billion year over year. Analysts were expecting earnings per share of $1.13 and sales of $2.5 billion, respectively.
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The company's results continued to be driven by stronger store traffic as more and more consumers seek out discounts on everyday items as well as seasonal merchandise. With most items on sale for less than $10, Family Dollar's business continues to thrive in the current economy. The strongest growth came from the consumables segment with a 13% increase in sales as more consumers seek discounts on necessities like food. The Seasonal and Electronics segment continues to be a small but growing part of the business and experienced a 9% growth in sales. The strong results from Family Dollar appear to confirm that while the United States' economy continues to show signs of improving, many U.S. consumers still remain very price sensitive and are actively seeking the discounts found at Family Dollar. For more information, see The 4 R's Of Investing In Retail.
A Likely Trend
Family Dollar is the second largest deep discount retailer behind Dollar General (NYSE:DG). These two, along with other deep discount "dollar" stores like Dollar Tree (Nasdaq:DLTR), are thriving in the current environment. Even if the economy improves, more visits to deep discount retailers is a likely trend. The reason is that middle class consumers are attracted to the savings offered at these stores for everyday essentials. Family Dollar's strong results were driven by the company's addition of hundreds of food items as consumers seek out ways to save. This focus on the essentials is also going mainstream. Target (NYSE:TGT) is also revamping its stores to offer a larger grocery section, as those products will drive up consumer traffic and increase the likelihood that they make other purchases.
The Bottom Line
Even as the economy improves, the habits formed by visiting discount retailers for savings on paper towels and milk will not disappear. Everyone loves to save money and that mindset will bode well for Family Dollar and the industry going forward.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.