Deep discount retailer

Family Dollar Stores

(FDO)

said third-quarter earnings matched the analyst consensus as sales rose more than 11%.

Although the company had previously said sales in the quarter rose to $1.31 billion, revenue was not as robust as expected, Family Dollar said, as sales of discretionary items and seasonal goods were weak. Sales at existing stores rose 1.9% from a year ago.

Shares of Matthews, N.C.-based Family Dollar were lately down 55 cents, or 1.6%, at $31.85.

Net income rose to $73.8 million, or 43 cents a share, from $69.6 million, or 40 cents a share, in the year-earlier period.

Sales of basic consumable merchandise, such as household chemicals, paper products and food were "satisfactory," the company said, while sales of discretionary merchandise, including hanging apparel, domestics, giftwear and seasonal goods were below plan.

As a result, inventories were up 8.5% from the prior-year quarter.

The below-plan sales, along with increases in insurance costs, including workers' compensation, hurt expenses. Expenses as a percent to sales rose to 26% from 25.4% in the third quarter last year.

Meanwhile, gross profit margin as a percent to sales increased to 34.9% from 34.7% last year, as a result of a change in treating certain vendor allowances to conform with a recent accounting pronouncement and lower levels of markdowns.

In the fourth quarter, the company said it expects earnings to increase 8% to 12% over the prior-year's profit of 28 cents a share -- essentially in line with the analyst consensus for 31 cents a share.

Family Dollar sees exiting-store sales up 2% to 4% in the fourth quarter.

The company reiterated that it will open new stores aggressively in 2005 with preliminary plans to open at least 560 new stores with a focus on urban markets. As a result, "expanding initiatives" to support and enhance operating performance are being planned, which include new technology and training, in about 1,000 stores.

"These initiatives will result in better execution of our merchandising concept in urban markets and lead to increased sales and earnings for our company," Family Dollar said in a statement.