The Goodlettsville, TN-based company, which operates 7,712 stores in 30 states, said sales of its seasonal, clothing and home products, as well as food, beauty and cleaning brands helped sales increase 12.5%, better than sales for rivals Wal-Mart, which posted a 10.2% increase and Dollar Tree Stores Inc., which had a 9.2% gain in sales.

"I'm very pleased with the results of our second quarter," David Perdue, chairman and chief executive officer, said on the conference call to investors and analysts Thursday.

But Purdue said rising gas prices, high consumer debt, unemployment and rising interest rates were having an impact on spending by its lower-income customers. Those factors are expected to drive down profits for the current quarter as customers cut back on shopping, he said. The company has already seen the impact. Profits for the current quarter were already down 8%, the company said. Profits for the third quarter were expected to be between 19 cents to 21 cents per share, including costs of 2 cents to 3 cents a share from changes to the way it calculates inventory.

The addition of 633 new stores and a 3.9% increase in same-store sales during the quarter ending July 31, helped sales rise to $2.07 billion during the period, but aggressive price cutbacks by its competitors and higher fuel prices would likely curb August sales with gains in same-store sales likely to be up just 0.5 % to 1%, the company said. Sales are expected to increase by only 1% to 3% in the third quarter and 2% to 4% in the fourth quarter, the company said.

The company also decreased its full-year earnings range to $1.15 to $1.19 per share from an earlier estimate of of $1.15 to $1.20 per share.