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UPDATE 3-Family Dollar, other retailers see shoppers pull back

(Adds Gap Inc results, updates Thomson Reuters Index)

April 10 (Reuters) - Family Dollar Stores Inc, seeking to reverse declining sales and profit, said on Thursday it is slashing prices to win shoppers, cutting jobs, and shutting hundreds of stores.

The discount retailer, which caters to lower-income shoppers, many living paycheck to paycheck, reported sales at stores open at least a year fell 3.8 percent in the quarter ended March 1. It expects sales to decline this quarter, too.

Family Dollar Chief Executive Howard Levine, on a call with investors, pointed to "a more financially constrained consumer," echoing recent comments from rivals. Wal-Mart Stores Inc a few weeks ago said sharp cuts in food stamp benefits and higher payroll taxes had pinched its customers.

"There's still in a big part of the economy where price matters," said Wharton Business School professor Barbara Kahn.

A group of U.S. retailers posted sales figures that suggested consumers remained cautious in March.

The Thomson Reuters Same Store Sales Index, which tracks monthly sales at stores open at least a year at some key retailers, registered a 2.2 percent increase for March, below last year's result of 2.7 percent.

Gap Inc reported a 6 percent decline in comparable sales, with store traffic at its namesake clothes stores "well below" its expectations. Sales also fell at its Banana Republic and Old Navy stores.

To be sure, retailers were not helped by cold weather last month and a later Easter, which this year will fall on April 20 and push sales into next month.

But consumers were not in a mood to shop: the Thomson Reuters/University of Michigan's consumer sentiment index dipped to 80.0 in March from 81.6 in February, its lowest point since November.

Apparel retailers Victoria Secret parent company L Brands Inc, Cato Corp, The Buckle Inc, and Zumiez Inc all reported same-store sales declines for March, while Stein-Mart Inc reported a smaller increase than Wall Street analysts expected.

Rite Aid Corp reported a 5 percent decline in same-store sales of general merchandise. But the drugstore company gave a better-than-expected profit for its new fiscal year, and shares rose 10 percent to $7.04, their highest level since 2001.

Costco Wholesale Corp reported a better-than-expected 5 percent increase in March same-store sales.

The S&P Retail Index closed down 2.1 percent, compared with a 1.6 percent decline for the broader S&P 500 L. Brands shares were down 5.2 percent. Gap shares fell 3.2 percent after hours.

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Family Dollar, which has struggled to compete with rivals Dollar General Corp and Dollar Tree Inc, has created many of its own problems.

It has found that customers balk at higher prices, especially as rivals were lowering theirs, and expanded its store fleet aggressively.

The retailer has begun to try to remedy that by implementing price cuts on 1,000 basic items, though the company did not give specifics on which products.

"That magical $1 price point that has been so important to us over the years, it's hard to find sometimes," Family Dollar's Levine said on a call. "These investments will make us more competitive."

Family Dollar, which operates 8,100 stores across the United States, also said it would close 370 unprofitable stores, and slow its expansion. The company will open between 350 and 400 new stores next fiscal year, rather than the 500 initially planned.

Comparable sales last quarter at the stores Family Dollar will close were down 8 percent.

Overall sales at Family Dollar in the quarter fell 6.1 percent to $2.72 billion, below the $2.77 billion analysts were expecting, according to Thomson Reuters I/B/E/S.

Net income was $168.9 million, or $1.47 per share, down 35 percent from $220.4 million, or $1.90 per share.

The discount chain's gross profit fell 6.7 percent points, as shoppers gravitated toward buying everyday products such as food and cigarettes, which have lower profit margins than items like clothing and housewares.

(Reporting by Phil Wahba. Additional reporting by Shailaja Sharma in Bangalore; Editing by Savio D'Souza, Sofina Mirza-Reid and Jonathan Oatis)

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