(Reuters) - Dollar Tree Inc DLTR.O 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 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.
Dollar Tree’s net income fell to $81.9 million, or 35 cents per share, in the third quarter ended Oct.31, from $133 million, or 64 cents per share, a year earlier.
Excluding items, the company earned 49 cents per share, missing the average analyst estimate of 53 cents.
The company forecast current-quarter sales of $5.32 billion to $5.42 billion, below the average analyst forecast of $5.44 billion.
Dollar Tree’s shares were up 4.6 percent at $72.79 in late morning trading.
Reporting by Sruthi Ramakrishnan in Bengaluru, Additional reporting by Shubhankar Chakravorty; Editing by Maju Samuel and Sriraj Kalluvila