Family Dollar Stores Inc. ( FDO - Analyst Report ) , an operator of a self-service retail discount store chain, is slated to report its third-quarter 2012 financial results on June 28, 2012. The current Zacks Consensus Estimate for the quarter stands at $1.06 a share, indicating an estimated year-over-year increase of about 16.5%. Revenue, as per the Zacks Consensus Estimate, is $2.4 billion.

Second-Quarter Synopsis

Family Dollar’s quarterly earnings of $1.15 per share exceeded the Zacks Consensus Estimate by a couple of cents, and jumped 17.3% from 98 cents earned in the comparable prior-year quarter.

The company posted a year-over-year increase of 8.6% in revenue to $2.5 billion, reflecting sales growth across Consumables (up 12.9%) and Seasonal and Electronics (up 9.4%) segments, offset by Apparel and Accessories (down 5.9%) and Home Products (down 0.5%). However, total revenue fell short of the Zacks Consensus Estimate of $2.46 billion.

Family Dollar expects earnings to be in the range of $1.01 to $1.11 for the third quarter and $3.55 to $3.75 per share for fiscal 2012.

Management forecasts third-quarter comparable store sales to rise between 5% and 7%, and fiscal 2012 comparable store sales to climb between 5% and 6%. Family Dollar, which faces stiff competition from Wal-Mart Stores Inc. ( WMT - Analyst Report ) and Dollar General Corporation ( DG - Snapshot Report ) , expects fiscal 2012 net sales to increase in the range of 9% to 10%.

Earnings Estimate Revisions - Overview

Estimates haven’t moved for the upcoming quarter, indicating a lack of major catalysts during the quarter.

Agreement of Estimate Revisions

Among the 21 analysts providing estimates for the quarter, none revised their estimates either upward or downward in the last 30 days. For fiscal 2012, 1 analyst revised his or her estimate upward, while none lowered.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the quarter therefore remained stable over the last 30 days. The analysts remain constructive on the stock based on the company’s growth potential and brand value. However, they expect margins to remain soft as consumers are spending on basic necessities, such as food, which carries lower margins. Estimates inched up a penny to $3.67 for fiscal 2012.

Mixed Surprise History

With respect to earnings surprises, Family Dollar has topped as well as missed the Zacks Consensus Estimate over the last four quarters in the range of negative 3.2% to positive 3.1%. The average remained at positive 0.6%.

Our View

Family Dollar’s strategic initiatives to enhance merchandising, marketing and store operations have resulted in persistent growth in both its top and bottom lines. In order to boost market share, Family Dollar intends to focus on both consumable and discretionary categories.

Further, the company has effective price and inventory management, cost control, private label offering, and expanded operating hours to drive sales and margin trends.

Moreover, the company’s point-of-sale technology (credit card and food stamp acceptance) and store realignment initiatives better positions it to increase traffic and meet customer demand while enriching the in-store shopping experience.

However, customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.

Currently, we have a long-term Neutral recommendation on the stock. However, Family Dollar holds a Zacks #2 Rank, which translates into a short-term Buy rating.