Save Your (Family) Dollars

Family Dollar's (FDO) second-quarter earnings report Thursday showed that the discount retailer has made some strong strategic moves.

For the quarter ended March 3, the company posted earnings of 60 cents a share on revenue of $1.95 billion, matching analysts' estimates. Earnings were 35 cents a share a year ago, when results included an 18-cent litigation charge.

Family Dollar also reaffirmed guidance for the current quarter and year, forecasting earnings of 39 cents to 43 cents a share for the third quarter and $1.63 to $1.69 for the year. Wall Street currently expects earnings of 41 cents a share for the quarter and $1.65 for the year.

I like what I'm seeing at Family Dollar. The company's margins are improving, and it has been smart in adding consumables and focusing on an urban strategy to enhance performance.

Nevertheless, I want to see the stock trading at the same bargains it offers its customers before getting involved.

Considering rival Dollar General's(DG) recent takeout announcement, some investors believe Family Dollar may be next up in the group for a buyout. It's certainly possible, but I believe potential suitors will want to see more evidence that the company's new initiatives are working.

That being said, the early results are positive. Family Dollar also boosted its sales per square foot to $79.70 in the first half of the fiscal year, compared with $77.06 in the comparable period last year.