Sales at Family Dollar Stores, Inc. (NYSE: FDO) were the best in 12 years.  That sounds great until the realization that earnings missed analysts’ estimates and the company’s shares are indicated down sharply in pre-market trading. Family Dollar reported sales of $2 billion for its quarter ended in November, and EPS of $0.58. Analysts had been expecting sales of $1.98 billion and EPS of $0.61.

Competitors Dollar Tree, Inc. (NASDAQ: DLTR) and Dollar General Corp. (NYSE: DG) are not scheduled to release earnings until February and March, respectively. Dollar Tree is expected to post EPS of $1.28 on sales of $1.75 billion and Dollar General is expected to post EPS of $0.59 on sales of $3.53 billion. The world’s largest retailer, Wal-Mart Stores, Inc. (NYSE: WMT) is expected to post EPS of $1.32 on sales of $118.07 billion in late February.  Dollar General remains one of our top stocks to own for the next decade.

In its first quarter, Family Dollar same-store sales rose 6.9%, primarily on sales of food and candy. Same store sales in December rose 4%. BJ’s Wholesale Club Inc. (NYSE: BJ) this morning reported same-store sales for December up 1.4%, excluding gasoline sales, and 3.8% overall. Both numbers missed analysts estimates of a 3.4% rise excluding gasoline and 4.4% overall. Walgreen Co. (NYSE: WAG) also missed December same-store sales estimates, reporting a 2.8% rise overall and a rise of 3.6% in non-pharmacy sales. Analysts had been expecting a 3.3% overall rise and a 2.9% gain in non-pharmacy sales.

Shares in Family Dollar have added 80% in the past year, reaching a new 52-week high in early December. Dollar Tree stock has performed nearly as well, up more than 70%. Dollar General shares have lagged a bit, up  just over 30% in the past year.

The concern has to be that the discounters are about to see a drop in sales as the US economy continues to recover. The companies have been adding and remodeling stores, with the latest announcement from Dollar General coming earlier this week that it plans to add 625 stores in 2011 and upgrade 550 more. Family Dollar added a net 67 new stores in its first fiscal quarter, and renovated another 173. The company expects to open 200-220 net new stores during the 2011 fiscal year.

Family Dollar also updated its outlook for fiscal 2011, narrowing its EPS forecast from $3.04-$3.24 to $3.08-$3.23. EPS in 2010 totaled $2.62.

Family Dollar’s outlook, on the whole, is optimistic, but not optimistic enough. The company expects EPS for its second quarter of $0.92-$0.97, compared with analysts’ estimates of $1.00.

Family Dollar shares are down nearly -8% in pre-market trading this morning, and it is dragging Dollar Tree and Dollar General shares down as well, with both off about -2.5%.

Paul Ausick

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