Let’s Earn Some Dollars

Garima is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Dollar General (NYSE: DG), primarily a discount retailer in the United States and manufacturer of paper and cleaning products, recently declared fantastic financial results for the quarter ended, Nov. 2, 2012. It reported a quarterly revenue growth of 10.3% and EPS growth of 24%. The results were far beyond expectations.

Measurable Aspects

Dollar General has a market cap of $15.52 billion, and its shares are trading at an unusually high volume. Sales increased by 10.3% to $3.96 billion for the third quarter, compared to over $3.60 billion during last year. The company also reported a 4% hike in same-store sales. Operating profit increased from 8.6% to 9.1% year-over-year, setting a new record.

Selling, general, and administrative expenses (SG&A) accounted for 21.8% of sales as compared to 22.4% in the third quarter of 2011, which is an improvement of 58 basis points.

 Looking Forward

Dollar General plans to have another distribution center operational by 2014 in Pennsylvania. Dollar General’s response to the invasion of the micro Wal-Mart stores into the industry includes building larger stores. Moreover, in fiscal year 2013, the company plans to open approximately 635 new stores, including 20 Dollar General Market stores and 40 Dollar General Plus stores.

The Chairman and CEO of the company, Rick Dreiling, is confident that Dollar General shall continue building on its strong track record of success. The company expects total sales for the 2012 fiscal year to increase by 8%-8.5 % year over year, and comparable store sales for the fourth quarter are likely to increase by 3%-4%. Gross profit for the fourth quarter is expected to be flat or modestly below that of last year. Based on these results, management is now forecasting full year adjusted earnings per share to be in the range of $2.82 to $2.85.

 Areas to be considered

Although the company has reported better-than-expected third-quarter profits, it faces stiff competition from Dollar Tree (NASDAQ: DLTR), Family Dollar Stores (NYSE: FDO), and Wal-Mart (NYSE: WMT)

Dollar Tree, North America's leading operator of discount variety stores selling things for $1 or less, also recently reported its results for the third quarter, with a growth of 18.6% in its Diluted EPS. The company is expanding aggressively with a high store count and plans to open a distribution center in Connecticut to support expansion in the northeast.

Family Dollar Stores has been providing value and convenience to customers in easy-to-shop neighborhood locations for the past 50 years. In anticipation of increased federal tax rates in 2013, the company’s Board of Directors decided to pre-pone the payment date of its second quarter dividend, which in prior years has been paid in January. Furthermore, it declared a cash dividend of $0.21 per share on the company’s common stock.

With shares of Wal-Mart trading at a low, a lot of people have negative vibes about the company; but there is still room for growth, especially on the international level. While China and Japan are going through some rough patches, Wal-Mart has its eyes set on Africa, Mexico, and more. Domestically, Wal-Mart aims to take market share away from its competitors, which has been its regular practice, but dollar stores are going to be tough to defeat, as most of them are located in suburbs or small towns and have loyal customers.

Takeaway Advice

The investments and strategies of Dollar General to expand and increase same store sales indicate that the company should have a bright future. Their plans of action also show that they are well prepared to deal with Wal-Mart’s recent entry into the market.  Dollar General can be considered a good investment because of the high growth in its net income and its continually expanding network of stores.

Moreover the Company has consistently delivered returns in the past and still seems capable enough to deliver more in the future. Therefore, I would recommend a strong buy for Dollar General’s stock.

garimaarora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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