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3 Dollar Stores to Consider for Your Portfolio

April 16, 2014 | About:
jaggom

jaggom

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The economic recovery is still inconsistent and consumers are scheming their spending. Moreover, there is no relief from payroll taxes. Hence, consumers are looking for attractive discounts and searching store to store to grab the best offer while shopping for consumables. As isevident from quarterly results of dollar stores like Dollar General (DG), Family Dollar (FDO), and Dollar Tree (DLTR), these companies depend mostly on consumables for driving traffic to stores.

The “Great Recession” has made these dollar stores popular. These stores look for consumers who rely on discounts and those with smaller monthly shopping baskets. Let’s evaluate the performance of these companies and predict the same for the future.

Dollar General

Dollar General has a store count of 11,061 stores spread across 40 states and is the largest of the three. It has added 577 new stores and remodeled or relocated 534 stores during first nine months of fiscal 2013 as a part of its expansion plans. Dollar General plans to open approximately 700 new stores and relocate or remodel approximately 525 stores in 2014 that would result in square footage growth of 6% to 7%.

The consumables category displayed strong sales due to an increase in demand for tobacco products, perishables, candy and snack. All players in this category are keen on capturing the huge consumables market of the U.S. that is worth $800 billion.

Going forward, total sales for the full year are expected to increase 10% to 10.5% versus the previous fiscal, and an increase of 4% to 4.5% in same-store sales is expected for the full year. The EPS guidance has been revised by the company from $3.15 to $3.18 for the full year.

Family Dollar

A much smaller competitor of Dollar General is Family Dollar in terms of the store count, which stands at less than 8,000 in 45 states and it follows Dollar General’s strategy of providing discounted food, home and clothing products, and caters to similar target customers. Similar to Dollar General, the consumables category proved to be a major growth driver and accounted for nearly 74% of revenue of Family Dollar. The company reported revenue of $2.5 billion, a 5.8% increase from the last quarter. However, flat comps led to the fall in consensus estimates.

Dollar Tree

Dollar Tree offers many products at a price of $1 and is the smallest of the three dollar stores. However, it missed earnings and revenue estimates with weak Q3 results. However, it reported a revenue jump of 9.5% to $1.9 billion, comps increase of 3.1%, and EPS increased 13.7% to $0.58.

Management is quite optimistic about its growth prospects. There is a huge potential of growing the stores from 4,800 to 7,000 stores in the U.S and up to 1,000 stores in Canada. Dollar Tree added 117 stores during the quarter and achieved the total store count of 4,953. The company has huge plans to open 340 new stores, relocate 75 stores and expand nearly 413 projects in the U.S. and Canada for fiscal 2013.

In addition, Dollar Tree has increased its offerings by 40% through online expansion and increased the offerings by 40% on its website in the previous quarter. It is now offers more than 3,800 items online, including more than 1,700 items in less than a case pack quantity. The online venture, Dollar Tree Direct, is expected to push incremental sales going forward.

Conclusion

Looking into the dollar store segment the Dollar Tree and Dollar General are performing as per expectations while Family Dollar is struggling. While Dollar Tree was slow in the previous quarter, but its long-term prospects are bright and the plans to increase its store count in the future. Dollar General, which is the biggest dollar store chain intend to stay ahead of the pack with its solid initiatives.

So, Dollar General or Dollar Tree is the best option to highlight the investors' portfolios that are looking to benefit from tight consumer spending.


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