As expected, deep discounter Dollar Tree (Nasdaq: DLTR) reported lower profits for the fourth quarter as consumers got a late start on their holiday spending. We had heard from more than a few retailers that consumers weren't opening their wallets as they usually did in November, but at Dollar Tree they were coming in droves in late December.

That late push wasn't enough to push sales up over last year, however, and Dollar Tree's revenue fell 1.5% to $1.3 billion for the quarter. The top-line decline fell all the way to profits, as net income slipped 3%.

So at first glance, it looks like it was a tough quarter for the company. But it really wasn't all that bad. Last year, there was an extra week of shopping that contributed an extra $80 million to revenue and an additional $0.07 per share to earnings. On an apples-to-apples basis, profits for the latest quarter rose 17% on a 5% increase in revenue.

Margins also continued to improve, and the landscape hasn't changed much since last year, when Dollar Tree continued to lead rivals like Big Lots (NYSE: BIG) and Fred's (Nasdaq: FRED), which aren't constrained by the one-dollar concept. The big winner, though, was Big Lots, whose trailing margins more than doubled over the course of the year.

Company

Op Margin Q4 '07

Op Margin Q4 '06

Dollar Tree

7.8%

7.9%

Family Dollar (NYSE: FDO)

5.8%

5.9%

Fred's

2.2%

2.5%

Big Lots

4.9%

2.2%

99 Cents Only (NYSE: NDN)

0.1%

0.4%

Trailing margins data courtesy of Capital IQ, a division of Standard & Poor's.

We might want to rename the chain the Five-Dollar Tree. The Deal$ chain it acquired has experienced a lot of success, particularly at newer stores. An average basket of goods sold there is about $17; the same customer at Dollar Tree is spending only $7. So expect to see more Deal$ open.

Dollar Tree is forecasting a relatively flat first quarter with numbers that are well within what analysts have forecast and are similar to what rival Family Dollar is expecting. Sales are expected to come in at $1.01 billion to $1.04 billion; analysts expect $1.02 billion. It expects profits of $0.37 to $0.40 a share; analysts forecast $0.38 -- flat from last year.

It's the same situation for full-year guidance, which doesn't include the effects of the so-called stimulus package dollars that ought to begin flowing from Washington in May. While it's debatable whether the tax rebates will stimulate the economy, it seems that many customers in the demographic served by Dollar Tree, Family Dollar, and 99 Cents Only may find the extra money useful. They're getting pinched by higher food costs, higher fuel prices, and rising housing costs. Will those extra dollars end up going to deep discounters?

Dollar Tree has helped itself by abandoning its opposition to using credit and debit cards at its stores. It continues to add new cards, so consumers will certainly find it easier to spend their money at Dollar Tree's stores.

Dollar Tree's prices might stay at a dollar, but earnings should continue to rise.

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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.