Dollar Tree sales beat estimates after Family Dollar deal

Tue Nov 24, 2015 11:09am EST
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(Reuters) - Dollar Tree Inc (DLTR.O: Quote) reported better-than-expected net sales for the third quarter, its first since acquiring Family Dollar and becoming the largest discount retailer in the United States.

The company's shares rose as much as 7 percent to $74.47 in early trading on Tuesday.

Higher rents, taxes and healthcare costs are pushing low-income Americans to rein in spending, helping discount retailers to win more business, Dollar Tree Chief Executive Bob Sasser said on a conference call.

Dollar Tree completed its acquisition of Family Dollar this year, in the process overtaking rival bidder Dollar General Corp (DG.N: Quote) as the No. 1 U.S. discount retailer by number of stores. It sold 330 stores as a condition of the deal.

The cost of rebranding hundreds of the 8,200-plus Family Dollar stores contributed to a 38 percent drop in third-quarter profit.

Margins were also hit, falling to 28.3 percent from 34.6 percent a year earlier due to more lower-margin products and marked down inventory at Family Dollar stores.

BB&T Capital Markets analyst Anthony Chukumba said the company's third-quarter results suggested the integration "may be diverting management's attention from the legacy business."

Net sales, however, more than doubled to $4.95 billion, higher than the $4.84 billion that analysts had expected, according to Thomson Reuters I/B/E/S.

Sasser said Dollar Tree planned to convert 200 Family Dollar stores to its own brand - which sells everything for $1 - in the current fiscal year ending January. It will also retain the Family Dollar brand, where prices vary.   Continued...

An advertising sign is pictured at a Dollar Tree store in Pasadena, California August 31, 2015.  REUTERS/Mario Anzuoni