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Family Dollar (FDO) did not disappoint Wall Street. For the second quarter, the discount chain said it made 81 cents per share against 60 cents per share in the second quarter of 2009. That was good for a 35% growth rate.

Even better, though, was the fact that management was able to beat the estimates. Analysts were looking for 78 cents per share on the bottom line. The gross margin rose from 33.7% to 35.4%. Same-store sales expanded by 3.6%.

Family Dollar Stores (FDO), a discount chain whose colleagues include Dollar Tree (DLTR) and Wal-Mart (WMT), is set to report second-quarter earnings on Wednesday. The question is, should a trader open a position before the numbers?

This is a really difficult one. According to Trey Thoelcke's data summary, analysts are expecting very good things from the retailer. Earnings may rise over 20% to 78 cents per share, while sales could increase just under 5%. Another positive element is the dividend payout: it was raised in January by 14.8%. You've got to take that as a sign of confidence on the part of the management team, right?

The 2009 equity market recovery has led to an increase in Q ratios for the world's largest retailers. What does this mean? They're using their tangible assets effectively and have demonstrated the strength of intangible factors, such as brand and operational efficiency, to create shareholder value.

"Q" is the ratio of a public company's market capitalization to the market value of its tangible assets. So, a Q ratio of above one means that investors value the company's non-tangible assets -- e.g., brand, differentiation, innovation, customer experience and customer loyalty -- and see these factors as reasons to pay a higher price per share. A company with a Q ratio of below one can't generate a sufficient return on its physical assets. According to Deloitte, this could create an arbitrage opportunity, as it may be ripe for an acquisition.

Dollar Tree (NASDAQ: DLTR) has more than 3,500 stores that sell its inventory of toys, durable housewares, candy, seasonal goods, and so on for a $1. Its other stores, operating as Deal$, sell most of its inventory at $5 or less.

This deep-discount retailer is generally considered to be the leader of its class and is rated a "buy" (four stars) by S&P with a target of $59.

The stock executed a major long-term bullish breakout at around $45. Technically this breakout is major and targets the stock at over $65.

Family Dollar Stores (NYSE: FDO), like Dollar Tree (NASDAQ: DLTR), is benefiting from the soft economy. Consumers love paying low prices, so they flock to these retail business models like moths to a flame. And judging by Family Dollar's Q4 report, people are still having a great time saving money.

Net income increased over 13% to 43 cents per share, which was two pennies higher than Wall Street's forecasts, according to our earnings preview. Unfortunately, sales weren't so great. Total sales went up 2.6%, and same-store sales saw a mere 1% gain. I would have expected higher growth in the comps metric.

Dollar Tree (NASDAQ: DLTR) reported a truly excellent quarter. The stats contained in the release are monumentally impressive. Dollar Tree increased sales almost 12% in Q2, a performance that essentially matched expectations. Per-share income soared 50% to 63 cents, beating estimates of 54 cents per share.

This is one of those situations where all the numbers point toward future growth. Margins increased, as did cash from operations (I enjoyed the fact that capital expenditures didn't go up too much). Same-store sales moved higher by 6.8%, and management's outlook for the rest of the fiscal year received a boost. And judging by the guidance, I'd say that Dollar Tree shares aren't overly expensive at the moment. Let's add a technical factor to go along with my opinion of the valuation: Dollar Tree closed Wednesday to the upside by well over 4% on the earnings news, not far at all from a 52-week high. The price action was accompanied by healthy volume.

Dollar Tree (NASDAQ: DLTR) saw a nice increase in its bottom-line profit. The retailer, which reported earnings for the first quarter earlier this week, said it made 66 cents per share, good for an increase of more than 37%. Revenues increased 14%, and same-store sales went up a whopping 9%. So many retailers would absolutely kill to have that same-store number.

It's no secret why Dollar Tree is thriving. Bad economy plus items-that-sell-for-a-dollar-each equals retail success. Brand equity is important. So is convenience. But a cheap price point oftentimes trumps all.

It comes as no surprise that the top performer among the stocks comprising the S&P 500 Index is a retailer focused on delivering quality products and services at a discount price.

Family Dollar Stores (NYSE: FDO) increased nearly 30% in 2008, compared with a decrease of 40% in the S&P 500.

Defying the expectations of gloomy analysts who are paralyzed by their inability to value companies during the last 12 months, and by short sellers who perceived a price drop following the high level performance in 2008, the stock is continuing its climb as we enter the 2009 trading year.

Family Dollar reported first quarter earnings Wednesday, which exceeded analysts' expectations and company projections.

Earnings for the period were up by 14%, with revenue increasing by 4.2% and same-store sales up a healthy 2.1%. Market reaction to the report is stunning, with FDO up more than 14% at the close.

Family Dollar CEO Howard Levine, son of founder and Chairman Emeritus Leon Levine, issued a forecast of continued growth for the next quarter and for all of 2009.

The company is now projecting earnings of $1.63 to $1.81 per share for fiscal year 2009. Earlier forecasts were in the range of $1.58 to $1.78. Projections of same-store sales growth for the year were also increased from a range of 1%-3% to 2%-4%.

FDO combines conservative leadership with a consumer-friendly neighborhood store environment, and a product mix appealing to cost-conscious consumers to deliver value and a positive shopping experience. With minimal exposure to price-volatile electronic and apparel inventory, company performance is not likely to be adversely affected by a prolonged economic downturn.

FDO has more than 6,000 locations in 44 contiguous states. The company has effectively managed its rapid growth during the last five years, having opened more than half of its stores during this period.

Family Dollar Stores (NYSE: FDO), a retailer that competes with Dollar Tree (NASDAQ: DLTR) and Wal-Mart Stores, Inc. (NYSE: WMT), reported earnings for the first quarter on Wednesday, and the market couldn't have been happier. As I was writing this, the stock was trading up over 13% on very nice volume. But, is 13 an unlucky number in this case? Would those buying in now be buying in too high?

Well, I can understand the euphoria surrounding the stock rise. To begin with, Q1 earnings beat estimates by two pennies. They came in at $0.42 per share, and that represented a double-digit growth rate for the bottom line of over 13% (there's that unlucky number again!). Top-line sales of approximately $1.8 billion essentially met expectations. When you think of Family Dollar's business and marketing model, you can understand why it's doing well. We're in one of the worst recessions ever, and people are looking for cheap prices on everything. I'm not the biggest fan of dollar-store businesses (for instance, I don't think I'd buy foodstuffs for a buck), but I do shop at them from time to time and can appreciate the allure. I think you can also understand why the stock is performing as well as it has been today: on top of the earnings beat, Family Dollar was the greatest S&P stock story of 2008 according to this source.

Here's the big question on everyone's mind: Is Family Dollar still a buy? If you're currently trading strength, I think you could buy this one after a pullback and then ride the stock to its 52-week high of over $32 per share. I see no reason why it won't make that level, especially if economic conditions continue to worsen (did I say if?). However, I certainly wouldn't be a buyer of today's rally. I think there's momentum behind this name, but I'll say this -- there are probably better bargains out there for any profit you might make from a trade on Family Dollar. So if you do make some bucks on it (pun intended), I'd probably take the profits and allocate them elsewhere. I'm just not sure that Family Dollar will be the best performer in '09 as well.

Disclosure: I don't own any company mentioned, but positions can change without notice.

Discount retailer Dollar Tree Inc. (NASDAQ: DLTR) surprised the Street this morning with a stronger-than-expected third-quarter profit. The cut-rate retailer raked in earnings of $43.1 million, or 47 cents per share, an improvement of 23.7% over the same period last year. Analysts were expecting a more modest per-share profit of 44 cents. Revenue for the quarter rose by roughly 12% to $1.11 billion, with same-store sales increasing 6.2%.

As long as consumers maintain a death grip on their discretionary spending, Dollar Tree seems poised to benefit. Shoppers appear to be migrating away from mid-market retailers and toward discount chains, such as DLTR and Family Dollar (NYSE: FDO). President and CEO Bob Sasser stated, "We will continue to focus on the customer, and serving their needs in a very difficult economic environment."

Going forward, Dollar Tree expects that its focus on the ailing consumer will support solid earnings growth. The company once again raised its fiscal-year earnings forecast; it now expects an annual profit of $2.45 to $2.53 per share.

American Eagle (NYSE: AEO) closed at $7.52 Friday. AEO is scheduled to report Q3 EPS on November 25. RBC Capital Markets lowered its price target to $14 from $15. AEO December option implied volatility of 120 is above its 26-week average of 74 according to Track Data, suggesting larger price movement.

Dollar Tree (NASDAQ: DLTR) closed at $35.28 Friday. DLTR is scheduled to report Q3 EPS on November 25. Deutsche Bank has a Hold rating and a $35 price target on DLTR. DLTR December option implied volatility of 84 is above its 26-week average of 59 according to Track Data, suggesting larger price movement.

Williams-Sonoma (NYSE: WSM) closed at $4.84 Friday. WSM said W. Howard Lester, Chairman & chief executive, sold about 4.2 million shares between October 29 and November 21. Lester also sold WSN shares from October 13 & 14th to cover a margin calls. WSM is scheduled to report Q3 EPS on December 4. Thomas Weisel lowered its 12-month price target from $10 to $8. WSM December option implied volatility of 168 is above its 26-week average of 68 according to Track Data, suggesting larger price fluctuations.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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