Family Dollar Stores Inc. (FDO) just hit a new multi-year high at $39.91 on rising estimate and the company’s better than expected Q1 results from early April that included a 33% income jump from last year.

Company Description

Family Dollar Stores, Inc. operates a chain of self-service retail discount stores for lower income family’s in the United States. The company operates 6,600 stores in 44 states, was founded in 1959 and has a market cap of $5.37 billion.

Discount retailers have seen their sales and earnings spike higher over the last two years, and Family Dollar is no exception. The ongoing recessionary environment that began in 2008 has driven a large-scale migration to value driven consumption, an opportunity for consumers struggling with unemployment and economic uncertainty to bolster the bottom line. That momentum showed up in Family Dollar’s first-quarter results from April 7 that included a 33& jump in income from last year.

First-Quarter Results

Sales were up 5% from last year to $2.09 billion. Earnings came in better than expected at 81 cents, 3 cents ahead of the Zacks Consensus Estimate. The company has surprised in each of the last four quarters by an average of 5%. Same-store sales, a key retail metric, were up 3.6% on higher customer traffic and an increase in the average customer transaction.

For a company selling inexpensive products in a high-volume environment, FDO has solid margins, with gross margin improving 170 basis points to 35.4% on lower freight costs and reduced markdowns. Family Dollar has also worked to improve its working capital management, driving its inventories down close to 10% from last year to $935 million.

A Look Forward

Looking forward, FDO has initiated a number of strategies to drive its long-term growth, including expanding store operating hours, more consumable products and a point of sale refresh system.

Estimates

The analysts are obviously encouraged by the news, sending the current-year estimate 12 cents higher to $2.58. The next-year estimate is up 18 cents in the same time to $2.92, a solid 13% growth projection.

Valuation

With a forward P/E multiple of 15.5X, shares of FDO are trading in line with the overall market. Its P/B multiple of 3.77X is below the S&P of 4.18X.

2-Year Chart

Shares of FDO began trending higher in early 2010 before surging to a new 2-year high on the strong Q1 results. The recent upward movement has been aggressive, so look for support at the previous breakout area at $35 on any weakness. Take a look below.

FDO: Family Dollar Stores, Inc. > <P ALIGN=

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service. Zacks Investment Research