Retailer Dollar Tree Inc reported a higher-than-expected jump in quarterly profit on Wednesday and boosted its full-year sales and earnings forecast amid a substantial increase in customer traffic in its stores.

Shares of the company, which sells most of its merchandise for $1, were up 6.4 percent to $50.96 on the Nasdaq. Earlier in the session the shares touched $51.39, topping a previous 12-month high of $48.21, set on Tuesday.

Long-time customers are shopping us more frequently and new customers are finding us all the time, CEO Bob Sasser said on a conference call with analysts.

Consumers are not only buying basic merchandise, like food, he said, they are also purchasing discretionary goods, like books and party supplies.

J.P. Morgan analyst Charles Grom said the results were impressive, driven by better-than-expected margin improvement and a lower tax rate.

Importantly, we still believe the guidance has upside, Grom wrote in a research note.

Net income rose 51 percent to $56.9 million, or 63 cents per share, in the second quarter ended August 1, from $37.6 million, or 42 cents per share, a year earlier. The earnings far surpassed analysts' average forecast of 54 cents per share, according to Reuters Estimates.

FLOURISHING DESPITE THE RECESSION

While other retailers have faltered in the recession, Dollar Tree and competitors like Dollar General and Family Dollar Stores Inc have flourished as the downturn forces shoppers to seek rock-bottom prices to stretch budgets.

Sasser said the retailer can continue its momentum even after the economy improves.

While Dollar Tree operated 3,717 stores as of August 1, he said it has the capacity to run 5,000 to 7,000 stores. He also said it sees growth potential for its Deal$ store chain, which carries items priced mainly at $5 or below.

While Dollar Tree is stocking more basic items, like food, amid the economic downturn, Sasser said it can quickly shift its merchandise mix to add more discretionary products when consumers once again have extra cash in their wallets.

You react to what the customer needs, he said.

For its third quarter, the company forecast sales of $1.19 billion to $1.23 billion, with a low-to-mid-single-digit rise in same-store sales. It expects earnings of 58 cents to 64 cents per share, while analysts had forecast 54 cents.

Dollar Tree now expects full-year sales of $5.09 billion to $5.19 billion, up from a prior outlook of $5.05 billion to $5.15 billion.

The company forecast full-year earnings of $3.10 to $3.25 a share, compared with a previous outlook of $2.75 to $2.90. Analysts on average were expecting $3.01.

(Reporting by Nicole Maestri; Editing by Maureen Bavdek, Lisa Von Ahn and John Wallace)