Dollar Tree, Inc. just reported its Financial Results for its Q3 FY 2016 and they were quite impressive overall. The company had psoitive same-store sales in a challenging economic environment, beating analysts estimates. It also had higher than expected profits. According to VectorVest¸ Dollar Tree has a forecasted earnings growth rate of 28%.

The Chesapeake, VA based business operates its discount retail stores in the U.S. (48 contiguous states) and Canada (5 provinces). It is North America's top operator of discount variety stores. It operates over 14,000 stores under the Dollar Tree, Family Dollar, and Dollar Tree Canada brands.

Q3 2016 selected financial highlights

Same store sales

Dollar Tree's same-store sales grew 1.7%, on a constant currency basis, versus a 2.1% increase in the 2015 period. The same-store sales increase was its 35th consecutive quarter of positive same-store sales. This increase was 1.8% when adjusted for the effect of Canadian currency fluctuations.

Gross profit and gross margin

The Company’s gross profit rose 8.6% to $1.52 billion in Q3. This is in comparison to $1.40 billion in Q3 of the prior year. Gross margin (as a percent of sales) increased to 30.4% compared to 28.3% in the prior year.

Net sales, operating income and net income

Dollar Tree's net sales grew 1.1% to $5.00 billion from $4.95 billion in 2015’s Q3.

Mr. Bob Sasser, its Chief Executive Officer, noted that, “…third quarter results last year includes sales from 325 Family Dollar stores that were divested after the end of the quarter.” So, we see that this sales increase is particularly notable since it achieved sales growth even without these stores.

Dollar Tree's operating income rose 53.1% to $342.4 million versus $223.7 million in the same quarter in 2015. Operating income margin grew to 6.8% in Q3 from 4.5% in 2015’s Q3. The operating income margin rose to 6.8% in Q3 from 4.5% in 2015’s same period.

What these results are telling us

Q3 2016 results are telling us that Dollar Tree is holding its own and more in the ultra-competitive discount/variety stores industry in the services sector.

The company said that it benefited from lower merchandise costs. It also said that it benefited from a more efficient transport network.

The company is also achieving better efficiency of operations. This is evident in its inventory management. In its conference call on November 22, 2016 the company stated “We ended the quarter with our inventory clean, well-balanced, seasonally relevant, and stores prepared for the Thanksgiving, Christmas and the fourth quarter holiday shopping season.”

Strategic initiatives

Dollar Tree is working on improvements in direct and indirect purchasing. They arere-bannering select stores to drive growth and have developed a shared services model that includes logistic and supply chains.

Store teams are concentrating on providing a clean, complete, enjoyable, and friendly shopping experience to customers. Dollar Tree is centering on dynamic seasonal offerings, as was accomplished with back-to-school initiatives. In Q3, Dollar Tree opened 101 new stores; relocated and expanded 15 stores; and re-bannered 42 more Family Dollar stores to Dollar Tree's. This totaled 158 projects during Q3 2016.

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