Dollar Tree reported results for its third fiscal quarter ended October 29, 2016.
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For the quarter, the company earned $171.6 million, or $0.72 per diluted share.
Net sales increased 1.1% to $5 billion from $4.95 billion in the prior year's third quarter. The prior year's quarter included sales from 325 Family Dollar stores that were divested following the third quarter of 2015.
Same-store sales increased 1.7%, on a constant currency basis, compared to a 2.1% increase in the prior-year period. Adjusted for the impact of Canadian currency fluctuations, the same-store sales increase was 1.8%.
The same-store sales growth, representing the company's 35th consecutive quarter of positive same-store sales, was driven by increases in comparable customer count and average ticket.
Gross profit increased 8.6% to $1.52 billion in the quarter compared to $1.40 billion in the prior year's third quarter. As a percent of sales, gross margin increased to 30.4% compared to 28.3% in the prior year. The improvement was driven primarily by lower merchandise and freight costs.
The prior year's third quarter included $13.0 million of markdown expense for Family Dollar related to product assortment rationalization and planned liquidations, and $38.4 million for Family Dollar related to the amortization of the stepped-up inventory basis.
Selling, general and administrative expenses were 23.6% of sales compared to 23.8% of sales in the prior year's third quarter. Excluding $11.8 million of acquisition-related costs from the prior year's period, selling, general and administrative expenses, as a percent of sales, remained consistent at 23.6%.
Increases in store hourly payroll, as a percent of sales, were offset by lower professional fees and lower depreciation expense, as a percent of sales.
Operating income increased 53.1% to $342.4 million compared with $223.7 million in the same period last year. Operating income margin increased to 6.8% in the current quarter from 4.5% in last year's quarter.
This increase in operating income is the result of a $61.2 million increase of operating income in the Dollar Tree segment, and a $57.5 million increase in operating income in the Family Dollar segment.
The company's effective tax rate for the quarter was 25.5% compared to 34.3% in the prior year period. The lower tax rate included an expected one-time tax benefit of $21.4 million, or $0.09 per share, related to a state reduction in corporate tax rate.
Net income compared to the prior year's third quarter increased $89.7 million, or 109.5%, to $171.6 million, and diluted earnings per share increased to $0.72.
During the quarter, the company opened 153 stores, expanded or relocated 39 stores, and closed 10 stores. Additionally, as part of its re-banner initiative, the company opened 42 former Family Dollar store locations as new Dollar Tree stores.
Retail selling square footage at the end of the quarter was approximately 112.0 million square feet. ■