Discount chain Family Dollar Stores, Inc. (NYSE:FDO) reported a 10.8 percent increase in sales, rising to $2.36 billion in the fourth quarter. However, the same store sales were up 5.4 percent. The increased sales of basic goods and food items fetched more customers, but the company’s margins remain tight.

Family Dollar Stores logo

Family Dollar Stores, Inc. (NYSE:FDO) earned 75 cents per share during the fourth quarter, which was in line with Wall Street expectations. Family Dollar offers a wide range of general merchandise. Now the company is opening more stores aggressively, and adding new products to boost growth. In order to compete heads on with Dollar General and other retail chains, the company is adding more beauty, health, and food items.

Family Dollar Stores, Inc. (NYSE:FDO) earned a net profit of 69 cents per share, or $80.9 million during the fourth quarter. Last year, it earned $79.8 million in the same quarter. The company’s actual profit was 75 cents per share in the fourth quarter, but a litigation settlement with some of the company workers cost it 6 cents per share.

However, profit margins continue to suffer. The Q4 gross profit was 33.8 percent of net sales, lower than 34 percent in the same quarter last year.

The company expects to earn 69-78 cents per share in the first quarter of FY13, and $4.10 to $4.40 for the full year. Wall Street analysts estimate the first quarter profits at 77 percent per share, and $4.22 in full year. Family Dollar estimates a 4-6 percent jump in net sales during FY13. Here is the detailed valuation analysis of Family Dollar.

Morgan Stanley (NYSE:MS) maintains its overweight rating for Family Dollar. The Morgan Stanley research team says that Family Dollar’s recent initiatives (consumables rollout) is working, because, despite June being a weak month for the company, sales showed strong growth throughout the quarter. Consumables jumped 16.1 percent during Q4, better than its 12.1 percent growth in the third quarter.

Dollar Tree, Inc. (NASDAQ:DLTR), a competitor of Family Dollar, announced a 33 percent increase in net profits over the same period last year, riding on higher sales and better margins.