Dollar store stocks gain as economy takes toll

Dollar store stocks gain as economic worries take toll

Associated Press

NEW YORK (AP) -- Shares of dollar stores advanced Wednesday after one of the industry's big players, Dollar Tree Inc., reported a 22 percent increase in its fourth-quarter profit that was helped by the growing number of cash-strapped people looking for ways to save money.

In a conference call with investors, CEO Bob Sasser said Dollar Tree could play a role in helping consumers, who are currently burdened and under pressure.

"At Dollar Tree, we think of ourselves as part of the solution ... and a destination for a cash-strapped customer that's trying to balance their budget," Sasser said.

Dollar stores, which typically offer a wide variety of items, have been attracting more price-conscious shoppers in the downturn. They've been stepping up their offerings, whether it's by bulking up their grocery sections, adding more name brands or redesigning layouts to be more inviting to shoppers. Because they're smaller than big-box retailers like Wal-Mart and supermarkets such as Kroger, they're also often seen as quick, convenient places to pick up everyday necessities.

Target meanwhile said that its net income fell in the fourth quarter in part because of weaker-than-expected holiday sales. The company said its gross margin — the percentage of each dollar in revenue made that a company actually keeps — declined during the quarter due to holiday markdowns. Analysts had been watching to see how Target would do now that consumers are being squeezed by an increase in the Social Security payroll tax of 2 percentage points that was rolled out last month.

Burger King, Wal-Mart and Darden Restaurants, which owns Olive Garden and Red Lobster, have already said they noticed a spending pull-back after the tax hike.

"While there are some encouraging signs in the housing market, volatility in consumer confidence, the payroll tax increase and rise in the price of gas all present incremental headwinds," CEO Gregg Steinhafel said Wednesday in a call with analysts.

Shares of Dollar Tree were up 11 percent at $45.54.

Family Dollar shares rose 2 percent to $57.66. Dollar General was up 4 percent at $46.85.

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