This Discount Retailer Earns Dollars Beyond Expectations

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Dollar General Corporation (NYSE: DG) saw a fifth straight quarter of double digit growth.  Dollar General is a discount retailer in the United States and operates convenient-sized stores that deliver low priced products that families use in day to day life. Dollar General has pleased its investors by providing an encouraging performance. Also during the third quarter, it repurchased 296 million shares of its common stock, increasing its year-to-date repurchases to $596 million.

A Look Into the Numbers

The third quarter saw a total sales increase of 10.3% to $3.9 billion, with same-store sales up by 4%. However, total sales were impacted by later than expected store openings in the second and third quarters, and resulting slower ramp up. The gross profit was 30.9% for the quarter, down by 11 basis point from last year’s third quarter rate and slightly below expectations. Higher markdowns, lower price increases compared to last year, higher consumables mix and higher shrink all pressured the gross margin. For the quarter operating profit was $361 million or 9.1% of sales, a strong improvement over last year. Finally, the third quarter adjusted net income increased by 22% to $210 million and adjusted earnings per share increased from 26% to $0.63 per share. The results beat Wall Street expectations.

Looking Forward

It is notable that the company's sales were better than expected and many of its customers view Dollar General prices as lower than those of retail giant Wal-Mart. Plans are in place to build onto four key operating priorities: driving productive sales growth, increasing gross margins, leveraging process improvement and information technology to reduce costs and further strengthening Dollar’s culture of serving others. Capital expenditures in 2013 are expected to be in the range of $600 million to $650 million.

Other’s in the Sector

Dollar Tree (NASDAQ: DLTR) operates a discount variety store chain in the United States and Canada. Operating margin increased significantly and the Company delivered record third quarter earnings per share. Earnings per diluted share for the third quarter were $0.68, including a one-time gain of $0.17 per share relating to the company's previously announced sale of its ownership interest in Ollie's Holdings. The opportunity for Dollar Tree in Canada is huge as it is committed to build infrastructure, develop store teams and improve the consistency of offerings across the chains and hence pose a threat to Dollar General.

Family Dollar Stores (NYSE: FDO) is a national discount store chain. The Company operates stores which are located throughout the United States and offers consumables, home products, apparel and accessories and electronics. Family Dollar Stores has a market cap of $8.17 billion and is part of the retail industry. Shares of Family Dollar are up by 12.2% year to date as of the close of trading on Tuesday. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. These strengths outweigh the fact that the company is trading at a premium valuation based on its current price compared to such things as earnings and book value.

Take Away Advice

Dollar General continues to excel in the discount store space, and the company continues to be the favorite in the industry. Further Dollar General plans to have another distribution center operational by 2014 and plans to open approximately 635 new stores, including approximately 20 Dollar General Market stores and 40 Dollar General Plus stores. Dollar General can be considered a good investment option because of the consistent growth in its net income and its continually expanding network of stores.

 


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