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MATTHEWS, NC-Family Dollar Stores will open about 400 new locations in fiscal 2007 as the chain moves to hike profitability with a series of initiatives aimed at attracting customers in an increasingly challenging economic environment.

The Matthews, NC discount retailer, which opened 100 new stores in the fourth quarter, said earnings for the period rose 33% to $38.8 million, or 26 cents a share, due largely to increased sales of electronics, clothing, food and pre-paid cell phones. Earnings for the fourth quarter of 2005 were $29.2 million, or 18 cents a share. Sales for the quarter ended Aug. 26 increased 10.3% to $1.58 billion while sales at stores open at least a year grew 4.9%.

Despite the uptick in earnings, the retailer said sales in hurricane-affected areas fell below expectations, causing overall sales at comparative stores to rise just 2% in September, missing the company’s 3% to 5% prediction. The company, which has more than 6,100 stores in the United States, said strong sales of higher margin items like apparel, electronics, food and pre-paid cellular phones helped boost sales for fiscal 2006 by 9.8% to $6.4 billion.

Net income fell 7% to $201.7 million, however, due to a verdict against the chain in a lawsuit over overtime pay for store managers. Family Dollar said it will appeal that ruling, which resulted in a $45 million, or 18 cents a share, charge against fiscal 2006 earnings.

Earnings for fiscal 2007 are expected to rise between 6% and 14% but the final results depend on a number of macroeconomic factors, particularly energy costs, R. James Kelly, the firm’s president and chief operating officer, said in a conference call with investors and analysts.

Family Dollar and other discount retailers said they have been hard hit by a drop in consumer traffic in recent months as buyers cut back on shopping trips due to higher gasoline prices.

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