Dollar Tree’s net income grew while net sales increased in the third quarter, but an analyst warned that the company must keep watch of the rising competition, which is likely to intensify next year.

The discount store chain’s net income soared 10 per cent from last year to $233.3 million, while revenue jumped 3.5 per cent to $7.57 billion.

This comes as its Dollar Tree segment’s net sales grew 8.3 per cent to $4.34 billion while Family Dollar’s net sales declined 2.5 per cent to $3.22 billion.

“While Dollar Tree continues to operate Family Dollar and is making some changes to course correct the division, its efforts are more akin to treading water than swimming strongly forward,” said Neil Saunders, GlobalData MD. He attributed the situation to the ongoing exploration of strategic alternatives for the business.

“Ultimately, Dollar Tree will need to conclude its review process, and it needs to be prepared that the end result might be that it keeps the operation as part of its business.”

During the period, the company opened 249 new Dollar Tree and six new Family Dollar stores.

The company forecasts net sales of $8.1 billion to $8.3 billion for the fiscal fourth quarter and $30.7 billion to $30.9 billion for the full fiscal year.

“Dollar Tree needs to remain alert to rising competition and an increased focus on price by other players,” said Saunders, hinting at possible headwinds to discount retailers.

“Some of this may be tempered by improved finances among its core customers, but there is still a need to sharpen the strategy and ensure it remains a compelling destination for shoppers,” he said.

“That can best be done without the baggage of Family Dollar weighing the group down and sapping management time,” he added.