A Grand Opening for Dollar Tree
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So I was wondering what to write about when I chanced upon the Grand Opening at my closest Dollar Tree (NASDAQ: DLTR). The company has almost doubled in the past year and I remembered it had traded to an all time high on Friday in sympathy to a Barclays upgrade of Dollar General (NYSE: DG) . Besides, I needed toothbrushes.
What's all the fuss about?
Inside, it was absolutely the cleanest dollar store I've ever seen. Aisles were wide and uncluttered. While checking out the prices and inventory I overheard the manager giving his team a pep talk. "Announcements every 15 minutes, people." Then he walked them over to a shelf and instructed them to move items to the front immediately to keep a clean line. Was I in Nordstrom's or Saks? Might I even get a thank you note after my purchase?
The vibe was more high end than I expected, not like in Family Dollar (NYSE: FDO) where there is a definite down at heel atmosphere. Or God forbid, Big Lots (NYSE: BIG) which just seems depressing.
Why Buy Dollar Tree?
One of the Fortune 500, Dollar Tree has over 4400 stores in the US and Canada and has operated as Dollar Tree Stores since 1993. And it has indeed run up to an all time intra-day high of $110.79 on Friday on double average volume. It recently approved a 2-for-1 stock split effective June 26 in the form of a 100% common stock dividend for shareholders of record on June 12. This is expected to increase shareholder demand. It is also ramping up its share repurchase program.
With a P/E of 26.17 compared to the 21.57 P/E of Family Dollar, Dollar Tree is a little pricier and FDO does have a 1% dividend. I suppose, on technicals alone one would want to buy FDO but seeing this Dollar Tree opening and the difference in tidiness, attitude and relative affluence of these shoppers compared to the experience at my nearest Family Dollar, there's really no competition. Dollar Tree is a better experience. Also, that Barclays upgrade for Dollar General was followed up by a downgrade to equal-weight rating for Family Dollar.
Dollar Tree may also be improving their profile by their choice of locations. The Family Dollars are in more seedy strips in my opinion and this new location, for example, will be surrounded by a large bakery, a Chipotle Mexican Grill and other boutique type stores for a more upscale and family friendly shopping experience.
Dollar General, the largest small box discount retailer with 10,000 stores has a PE of 21.80 and has only recently become public again in 2009 after being private for several years. It has traded from $29.84 to $52.25 this last year and while it raised its full year outlook on June 4 it also had a 30 million share secondary offering that closed June 11. It has been buying back shares.
Big Lots while not technically a "dollar" store is generally considered in the same discount cohort of stores selling everyday low cost staples, although it does carry furniture. Big Lots has the lowest P/E of the four at 13.46. It is trading at $39.36 below its 52 week high of $47.22. There has been some controversy over last years' generous $11 million paycheck of its CEO, Steven Fishman. Also, it missed profit expectations at its last earnings report.
Is it Still a Bargain?
The dollar stores have had an amazing performance these last few years and as a Motley Fool video from Sat June 16 http://www.fool.com/investing/general/2012/06/16/avoid-these-2-retail-stocks.aspx advises to avoid these stocks, one point made is that these stores will be threatened by competition from the Wal-Marts and Targets as people trade up and there are fewer and fewer locations to open to support a non-competitive presence. The point is also made that Family Dollar and Dollar General are in less affluent neighborhoods. That being said, this new Dollar Tree is in a very nice new shopping plaza and if it's any indication at all, their real estate buyers are doing as well as their merchandise buyers.
Still, Family Dollar reports on June 28 and it might be wise to wait until after then and also the Dollar Tree stock split to see how the dollar store space is shaking out. Dollar Tree does not report until mid-August and there's a world of change (i.e. Europe and China) that could happen before then. If a non-European "everyday essentials' retail play is in your future, Dollar Tree may be the best of the dollar stores.
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