Dollar Tree, the biggest U.S. dollar-store chain after its acquisition of Family Dollar in 2015, reported a better-than-expected quarterly profit on Tuesday, helped by lower merchandise costs and freight expenses.
Shares of the company, whose same-store sales also beat expectations, were up 7.3 percent at $88 in premarket trading.
Dollar-stores have been expanding aggressively in recent years, taking market share from Wal-Mart Stores and other retailers, thanks to their smaller store sizes, improving product assortment and prices that start at $1.00.
However, Wal-Mart has been fighting back, spending heavily to entice shoppers to its stores with better-stocked shelves and reduced prices on key items such as food.
Dollar Tree's sales at stores open more than a year rose 1.7 percent in constant-currency terms, beating the 1.4 percent rise expected by analysts polled by researcher Consensus Metrix.
"We believe that these results demonstrate the Family Dollar acquisition is paying dividends and remains firmly on course in terms of the savings and benefits Dollar Tree promised investors," Neil Saunders, chief executive of research firm Conlumino, said in an email.
Dollar Tree's net income rose to $171.6 million, or 72 cents per share, in the third quarter ended Oct. 29 from $81.9 million, or 35 cents per share, a year earlier. The prior year included charges and mark downs on Family Dollar.
Excluding items, the company earned 81 cents per share, beating the average analysts' estimate of 78 cents, according to Thomson Reuters I/B/E/S. Net sales rose 1.1 percent to $5.00 billion, just short of the average estimate of $5.07 billion.
Dollar Tree completed the acquisition of Family Dollar in July last year, meaning the latest quarter is the first in which there is a true year-on-year comparison of combined company's performance.
(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Anil D'Silva and Ted Kerr)