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Family Dollar Shares Down on Profit Margin Outlook

Family Dollar Stores Thursday warned margins in the current quarter are being pressured by higher markdowns and shares fell more than 4 percent, despite an uptick in third quarter profit.

Family Dollar shares were down 78 cents, or 2.2 percent, at $34.13 after slipping as low as $33.36 earlier in New York Stock Exchange trade.

The company, which operates more than 6,300 discount stores, said net income rose to $60.4 million, or 40 cents per share, in the fiscal third quarter ended on June 2, from $56.9 million, or 37 cents per share, a year earlier.

Excluding a $5.7 million charge for settling a shareholder lawsuit over stock-option award practices, earnings were 42 cents a share.

That was a penny over analysts' average forecast of 41 cents a share, according to Reuters Estimates.

Family Dollar, which is trying to improve sales by resetting merchandise displays in its stores and adding more food items, said quarterly sales rose 5.4 percent to $1.65 billion.

Same-store sales, which tracks sales at stores open at least a year, increased about 1.5 percent as customers spent more money, offsetting a slight fall in traffic.

Lawsuit Settlement, Outlook

Shareholders sued the company last year, accusing insiders of personally benefiting from the manipulation of grant dates on stock options they received.

Last week, Family Dollar agreed to settle the lawsuit, with Chief Executive Howard Levine and other insiders agreeing to relinquish a total of 210,000 unexercised options.

The company also disclosed in March that an internal review found it did not properly account for certain stock options granted from 1995 to 2006.

Family Dollar, which prices most of its merchandise below $10, forecast fourth-quarter earnings of 26 cents to 29 cents a share.

The company said higher markdowns and low single-digit same store sales will weigh on operating margin, but it hopes to offset that with increased sales of prepaid services, better purchase markups, and lower expenses.

For the fiscal year, the company said it expected profit of $1.62 to $1.65 a share.

Analysts' average estimate was 28 cents for the fourth quarter and $1.65 for the full year.

Family Dollar still expects June same-store sales to rise by 1 percent to 3 percent. It also stood by its plan to open about 300 stores and close 45 others in fiscal 2007.

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