A dollar and a dream as discount variety stores' earnings miss Wall Street expectations.

Despite higher-than-anticipated sales and relatively strong comparable sales, discount variety store operator Dollar Tree (NASDAQ:DLTR) still came up short on earnings as $7.5 million in expenses related to its proposed acquisition of rival Family Dollar (UNKNOWN:FDO.DL) kept profits lower than expected. Yet even after backing out those costs, the owner of Dollar Tree, Deal$, and Dollar Bills still would have come up short of Wall Street's forecast. Dollar Tree reported second-quarter results Thursday morning.

  DLTR Guidance

Consensus Wall St.

Actual Yr. Ago % Chg.
Revenues (in billions, except for % change) $1.97-$2.02 $2.01 $2.03 $1.85 9.5%
EPS $0.58-$0.64 $0.64 $0.59 $0.56 5.4%

Management continues to tighten up its full-year guidance, now estimating sales to range between $8.44 billion and $8.55 billion, generating per-share earnings of $2.94 to $3.06, which includes a $0.02-per-share hit from acquisition-related costs. That's narrower than the range it gave after the first quarter, when it said it expected revenues to fall between $8.37 billion and $8.54 billion with earnings of $2.94 to $3.12 per share. 

Obviously the top end is taking the hit here, suggesting there could be pricing pressure coming. It's had a fairly strong first half of the year, with the first quarter being particularly robust, yet there may be some sluggishness by the time we get through the back half.

The Christmas selling season, for example, has just one more selling day than last year's compressed selling season, which, as you may recall, caused a national retailer freak-out up and down the line over the shortened holiday window. Some responded by opening on Thanksgiving day itself, not closing their doors till Black Friday was over, or running marathon sales right up till Christmas Day. Some did all three, or more! In the end it was a lot of sound and fury that really generated only middling results, which speaks to the condition the consumer still finds herself in.

Persistently high unemployment, lackluster job opportunities, and a meandering economy all weigh on her ability to buy more. That it's not forecasting stronger full-year earnings suggests it doesn't think the benefits of the holiday tailwind will amount to all that much.

Although a weakened economy is an environment that ought to play to Dollar Tree's strengths, it also continues to prey on its competitive pressures. Not only from deep discounting rivals like Dollar General (NYSE:DG), which has also gone after Family Dollar with a higher competing bid to the one Dollar Tree made, but among mass merchandisers like Wal-Mart as well, which has been in something of a sprint with Target to see who could lower prices faster.

Such a bargain! Consumers are responding to the value Dollar Tree offers.

Dollar Tree is still seeing strength in its stores as traffic and average basket rose in the quarter, helped along by its investing in more freezers, which allows consumers to buy greater amounts of consumables. Those help drive traffic, which it's been using to good effect so far, reporting pet supplies, hardware, household products, food, electronics, and party goods all performed well.

Yet despite have built up some momentum with higher comparables, it still maintains full-year same-store sales will range in the low- to low-mid-single digits. That's par for the course when it comes to management's outlook, giving it a conservative bias, but further underscores that the next six months for Dollar Tree might not be as robust as the first.

Add in costs from what may turn into a bidding war to acquire Family Dollar and it just might cast a pall over its operations.