Family Dollar Stores Inc sees higher-than-expected yearly profit after more shoppers flocked to its stores for low-priced holiday items and groceries and spent a little bit more on average.

Family Dollar sells most of its items for $10 or less and caters to consumers with household income of $40,000 and below.

The discount chain earned $123.2 million, or 98 cents per share, in the fiscal second quarter ended on February 26, up from $112.2 million, or 81 cents per share, a year earlier.

Analysts, on average, were expecting it to earn 97 cents, according to Thomson Reuters I/B/E/S. Analysts had raised their expectations from 95 cents per share earlier this month, after Family Dollar suggested earnings would be 97 cents to 98 cents per share.

Family Dollar, which has more than 6,880 discount stores in 44 U.S. states, rebuffed a buyout offer from Nelson Peltz's Trian Group earlier this month, saying its $55 to $60 per share offer substantially undervalued the company.

Instead, Family Dollar is continuing to open more stores and renovate older ones as it tries to capture more of shoppers' spending on basic items such as food. It plans to open about 300 new stores and shut some 80 to 100 doors this year.

Shares of Family Dollar rose 1.8 percent to $53.36 in premarket trading on Wednesday.

EXPECTS STRONGER YEAR THAN WALL STREET

Family Dollar forecast fiscal year earnings of $3.13 to $3.23 a share, while analysts were expecting earnings of $3.12. It expects sales to rise 8 to 10 percent this year.

For the current third quarter, Family Dollar forecast earnings of 92 cents to 97 cents per share, while analysts expect it to earn 94 cents per share.

The company expects sales at stores open at least a year, or same-store sales, to rise 5 to 7 percent in both the current quarter and the fiscal year.

On March 14, Family Dollar said that second-quarter sales rose 8.3 percent to about $2.26 billion, with same-store sales up 5.1 percent.

More customers visited its stores, based on the number of transactions, and the average transaction increased modestly, the company said. Sales of consumables, which include basic household goods, and seasonal items were strongest.

(Reporting by Nivedita Bhattacharjee in Bangalore and Jessica Wohl in Chicago; Editing by Saumyadeb Chakrabarty, Dave Zimmerman)

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