This Christmas: Save Time, Save Money
Harshit is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Dollar General Corporation (NYSE: DG), formerly known as J.L. Turner & Son, is a chain of variety stores which offers both brand and generic merchandise- including off-brand goods and closeouts of name-brand items – in the same store, often on the same shelf. The company has experimented with more than 10,000 stores in 40 states that carry a greater selection of grocery items and has reported revenue of $14.8 billion.
Prospects of the Company
Over the past 12 months, Dollar General generated $531.5 million in cash while it booked net income of $927.8 million implying conversion of 3.3% of its revenue into Free Cash Flow. The company is generating employment by opening two more stores one in Madera and the other in Chowchilla by the next spring with an objective to provide outlets in convenient locations in order to serve their customers and also following the strategy of expanding its product line by entering into the tobacco market.
Although the emerging market conditions do not favor the stock of Dollar General, it is expected that the stock will getting a bounce from oversold levels right now and that should continue for a while longer.
Despite being under pressure the company is constantly increasing its $1 items which represent approximately 30% of Dollar General’s collection, and by the end of the fiscal third quarter the Company remained cautious and posted a bigger-than-expected increase in profit to $207.7 million or 62 cents per share from $171.2 million or 50 cents, a year earlier. Where the earnings rose to 63 cents per share after adjusting for secondary offerings and debt amendments fees, the sales jumped by 10.3% to $3.96 billion.
Competitors in the Industry
Dollar Tree (NASDAQ: DLTR), a chain of discount variety stores that sells every item for $1.00 or less, operates through approximately 4,400 stores in 48 states. Dollar Tree’s stores provide consumable merchandise in various forms for seasons like Easter, Christmas as well for non-seasonable occasions. However, Dollar General’s strategy to cover geographically the masses by opening stores all around the 40 states, take them to an advantageous situation.
Family Dollar Stores (NYSE: FDO) is a self-service retail discount chain offers merchandise assortment including household consumables, clothing products and seasonal and electronic products primarily targeting low and middle-income consumers. Family Dollar reported revenue of about $8.5 billion and is not actually a dollar store as it offers approximately 90% of its assortment at less than $10 instead of one dollar.
To surpass the other dollar stores existing in the industry, Dollar General is keeping the consumers together to win its market share in terms of consumables and perishable items. The strategy of Dollar Tree by offering all items for $1 or less is aggressive and could manage them to report only 1.6% growth. With a 16.4 P/E ratio the company appears more favorably priced compared with Family Dollar’s 18.4 and Dollar Tree’s 15.6.
Take Away Advice
Although Dollar General’s share price has fallen since July because of a cut-down in sales and earnings, it is expected that the company’s investments and strategies will bounce back and will reap benefits in the long run. It is advisable to investors not to lose patience on the basis of the current downfall as the company expects sales to rise by 8% to 8.5% this fiscal year resulting in fiscal-year profit of about $2.82 to $2.85 per share. Thus buying shares for the long term will serve shareholder well.
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