Family Dollar Stores Inc reported a higher-than-expected quarterly profit and said earnings should top forecasts again this quarter as the discount chain lures more shoppers and improves margins, sending its shares up 8.4 percent.

Family Dollar caters to shoppers with household incomes below $40,000. But the retailer has said it is attracting more shoppers with incomes of up to $70,000 as unemployment hovers in double digits and credit remains tight.

Chief Executive Howard Levine said the discounter's efforts to broaden the appeal of our assortment have lured more shoppers.

Levine estimated that sales at stores open at least a year, or same-store sales, rose 4 percent in December, boosted by demand for toys and holiday gifts.

Last summer, Family Dollar began revamping its stores, giving more room to fast-moving items like food and paper towels, and cutting space for items like clothes, which were languishing. It is also renovating older stores to make them as productive and easy to shop as newer locations.

RISING PROFITS

Net income rose 14 percent to $67.6 million, or 49 cents per share, in the fiscal first quarter that ended November 28, from $59.3 million, or 42 cents per share, a year earlier.

Analysts, on average, were expecting 47 cents per share, according to Thomson Reuters I/B/E/S. The company had forecast 45 cents to 50 cents per share.

The North Carolina retailer, which sells most of its merchandise for below $10, said gross margins rose because of fewer discounts and lower freight expenses. Gross profit margin climbed to 36.1 percent from 35 percent a year earlier.

The chain said inventories at the end of the first quarter were 5.9 percent lower than a year earlier.

Last month, Family Dollar reported that first-quarter net sales rose 3.9 percent to $1.82 billion. It said same-store sales rose 2.4 percent -- below its estimate for growth of 3 percent to 5 percent.

For the second quarter, it forecast same-store sales would rise 2 percent to 4 percent, and that earnings per share would range from 65 cents to 70 cents a share. Analysts, on average, expect 64 cents per share.

For the full fiscal year, Family Dollar forecast net sales will rise 4 percent to 6 percent, with earnings per share ranging from $2.15 to $2.35.

The chain, which operates 6,600 stores in the United States, said it opened 43 new locations and closed 33 stores during the first quarter.

The company's shares rose $2.33, or 8.4 percent, to $29.80 in premarket trading.

(Reporting by Phil Wahba and Nicole Maestri; Editing by Lisa Von Ahn and John Wallace)

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