It might still be the middle of summer, but back-to-school time is nearly upon us. While retailers are bracing for a tough season, leading school-supply maker Acme United (AMEX:ACU) anticipates high marks.

Acme, a Motley Fool Hidden Gems Watch List pick, supplies students and schools with scissors, rulers, and first-aid kits. The company will report second-quarter earnings tomorrow, and if the results are anything like Acme's first-quarter numbers, investors can expect A+ performance.

Two national surveys predict a decline in back-to-school sales this year, and one suggests the worst school sales season in 10 years. Yet according to MasterCard's Back-to-School Spending Index survey, more than one-third of all consumers will spend more for the 2005 school year than they did in 2004.

Not surprisingly, discounters such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) rank high among shoppers' destinations; more than three-quarters of survey respondents plan to shop there. A resurgent J.C. Penney (NYSE:JCP) is expected to be a hot spot as well, since clothing and shoes will comprise most of the dollars spent. According to the National Retail Federation, shoppers plan to spend about $205 on new duds for kids, down slightly from the $219 they spent last year. Electronics may take the biggest hit; respondents estimated they would spend 33% less this year on the latest gadgets.

However, the school supplies that provide Acme's bread and butter are always in demand, which should help the company produce another slate of robust sales. Acme has turned in seven straight quarters of double-digit earnings growth, and its stock has appreciated 200% over the past year.

Staples (NASDAQ:SPLS) and OfficeMax (NYSE:OMX) are two of Acme's three main customers, jointly accounting for 43% of all sales. (The company's deal to provide private-label rulers to OfficeMax could be worth $1 million alone.) Wal-Mart and Target are also selling a growing proportion of its products.

One particular area to watch: Acme's European sales, which have been steadily plodding towards profitability. The company hasn't put a timetable on when it expects overseas sales in the black, but sales grew 25% last quarter, and losses narrowed to $60,000 from $140,000 last year.

Acme has focused on returning value to shareholders. In light of improving growth prospects, the company instituted a quarterly dividend last year. It just increased that payout to $0.03 a share, a 50% increase over its past four dividends. Moreover, Acme has purchased ever-increasing numbers of shares under its stock buyback plan. In 2002, it snapped up 65,000 shares; in 2003, it repurchased 118,000 more. Having bought up 142,000 of the 150,000 shares it authorized under its previous plan, the company approved the purchase of another 150,000 this year.

At the same time, the company has paid off its debts, kept its inventory and receivables growing more slowly than sales, and maintained a healthy cash balance. It was recently recognized as one of Fortune Small Business's fastest-growing small public companies.

We may be months away from the first round of report cards, but it seems that in many respects, Acme United has already made the grade.

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Fool contributor Rich Duprey owns shares of Acme United and Wal-Mart, but does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.