Furthermore, now that the payroll tax hike and ongoing sequester are taking deeper bites out of the American consumer, it’s appearing more and more likely that dollar stores in the United States may be taking meaningful share from their retail peers.
As a result, investors interested in the retail space would be well advised to seriously consider adding one of the nation’s major dollar stores to their portfolios.
Low priced merchandise turns into big profits for these retailers
Whereas many other retailers in the United States are producing disappointing first-quarter results, blaming everything from poor weather to government spending cuts all the while missing on sales and profit expectations, these deep-discount retailers are crushing expectations and firing on all cylinders.
First, Family Dollar Stores, Inc. (NYSE:FDO) reported that for the second quarter of fiscal 2013 ended March 2, 2013, net sales increased 17.7% to $2.89 billion. Same-store sales, which measures sales only at locations open at least one year, grew almost 3% year over year, and net income per diluted share for the quarter increased 5.2% to $1.21 per share.
Even better, Family Dollar has a long track record of rewarding its shareholders with consistent dividend increases, and the fantastic operating performance enjoyed in recent months will go a long way to ensure further rewards for the foreseeable future. In January this year, the company increased its dividend by more than 23% and authorized a new $300 million share buyback program. This marked the 37th consecutive annual dividend increase for Family Dollar.
Deep discount peer Dollar General Corp. (NYSE:DG) had a fantastic year, reporting record sales, operating profit, and net income for fiscal 2012. In March, Dollar General reported same-store sales increased 3% in the fourth quarter and nearly 5% for the full year. Furthermore, the company’s adjusted earnings per share clocked in at $2.91 per share.
The company is deeply committed to providing shareholders with meaningful returns, and has demonstrated that commitment recently. Along with its fiscal 2012 results, Dollar General increased its share buyback authorization by $500 million.
Last but not least, rival Dollar Tree, Inc. (NASDAQ:DLTR) reported 2.4% same-store sales growth in the fourth quarter and 15% net sales growth during the same period. Meanwhile, diluted earnings per share soared 26% during the fourth quarter.
For the full year, the company reported same-store and net sales increases of 3.4% and 11.5%, respectively. These results flowed through to the bottom line, as diluted earnings per share of $2.68 soared 33% from the year prior.
The dollar stores: great businesses, modest valuations
It’s reasonable to say that none of these dollar stores are screaming values at current prices. Family Dollar Stores, Inc. (NYSE:FDO) pays a dividend, but the company’s 1.6% yield falls short of the 2% yield available on the S&P 500. That being said, Family Dollar Stores, Inc. (NYSE:FDO) trades at about 17 times earnings, about on par with the valuation of the broader market.
Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR), meanwhile, hold trailing P/E ratios of 19 and 18 times, respectively, which may seem unattractive to die-hard value investors because those valuations are slightly above where the market trades.
However, it’s important to note the pronounced revenue and earnings growth rates pumped out by Dollar Tree, Inc. (NASDAQ:DLTR) and Dollar General Corp. (NYSE:DG), which trounce the comparable growth on the broader market. In addition, all three companies are aggressively buying back their own stock, which will juice earnings growth even more in the months ahead.
Plainly stated, this group of dollar stores has something to offer for nearly all investors. Family Dollar Stores, Inc. (NYSE:FDO) has a long track record of paying and increasing dividends, ideal for dividend growth enthusiasts, while growth investors should be excited by Dollar Tree, Inc. (NASDAQ:DLTR) and Dollar General Corp. (NYSE:DG), which carry modest valuations despite their compelling growth rates.
The article Dollar Stores Continue to Dominate originally appeared on Fool.com.
Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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