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Dollar General Corp. (DG), Dollar Tree, Inc. (DLTR): Why Dollar Stores Will Always Be a Hit

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As we come out of the recession, stocks like Michael Kors Holdings Ltd (NYSE:KORS) are on the rise, experiencing rapid growth as the economy improves. Analysts say high-income residents have recovered from the recent recession more quickly than middle- and working-class consumers, due in part to wealthier citizens benefiting from the rebounds of both the stock market and the housing market.

By contrast, some retailers that traditionally appeal to shoppers on a budget have experienced sluggish gains. While these consumers may be far from ready to begin spending lavishly, even at a dollar-store budget retailers benefit from steady earnings through economic ups and downs.

The profit problem

Dollar General Corp.Dollar General Corp. (NYSE:DG) recently announced a quarterly earnings increase of 3%, but the company also lowered the high end of its forecast, driving confidence down. Low profit margins were to blame for the lowered expectations, the company explained, and with the current economy, Dollar General Corp. (NYSE:DG) insists that its consumers would not support a price hike to offset the loss.

In its most recent quarter, Dollar General Corp. (NYSE:DG) earned $220 million on revenue of $4.2 billion. Despite sluggish income growth, the company emphasizes that more people shopped at Dollar General locations during the first quarter of 2013 than in the same quarter last year.

But one major benefit to Dollar General Corp. (NYSE:DG)’s stock is its tenacity. The stock was a consistent performer during the recession, increasing its profits by 200% between 2008 and 2009. The company continued to open stores during this time, populating both big cities and small, rural towns with new locations.

Dollar Tree, Inc. (NASDAQ:DLTR) still prevails

Dollar General Corp. (NYSE:DG) competitor Dollar Tree, Inc. (NASDAQ:DLTR) is considered the largest chain of “under $1.00” stores, specializing in selling only items that are less than $1.00. Dollar Tree, Inc. (NASDAQ:DLTR) also operates Deal$, which sells discount items of all price ranges, and a chain of stores called Dollar Bills.

The company also excelled during the recession, stating that its stores allowed people to continue to live life to the fullest even as family budgets were crunched. The company took the opportunity to grow, bolstered by successes like 2009’s profit increases of more than 50%.

Even with the recession reaching its conclusion, Dollar Tree, Inc. (NASDAQ:DLTR) is still doing well. For its most recent quarter, the company revealed an 8.3% increase in net sales, totaling $1.9 billion–a record for the company. Comparable-store sales were up, as well, with a 2.1% increase that added to the 5.6% increase in the previous quarter.

The company recently upgraded its forecast for the remainder of the year, lifting guidance from an expected $7.8 billion in sales to between $7.8 billion and nearly $8.0 billion. It added that it is well-positioned to take on the upcoming summer season.

Many analysts are predicting that dollar store sales in general will continue to stay strong, theorizing that most Americans will decline to return to extravagant spending regardless of the economy. The retirement of the baby-boomer generation could factor into this, as well, with many seniors leaving the workforce to rely on social security during their golden years.

Superstores

The success of dollar stores begs the question, how has the Wal-Mart Stores, Inc. (NYSE:WMT) world takeover impacted these retailers? There have been plenty of stories about mom and pops being put out of business by the bargain giant, but Wal-Mart advertises “everyday low prices” on all of the items consumers need…all in one place.

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