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Are Dollar Stores Still A Growth Story? – Dollar Tree, Inc. (NDLTR), Family Dollar Stores, Inc. (FDO), Dollar General Corp. (DG)

As the economy rebounds and consumer’s disposable income appears to be picking up, is there any room left for dollar stores to move higher? Quite possibly. This idea comes as Dollar Tree, Inc. (NASDAQ:DLTR), jumped 10% last week on better than expected earnings results. Dollar Tree has now outpaced other major discount retailers, including Family Dollar Stores, Inc. (NYSE:FDO) and Dollar General Corp. (NYSE:DG), over the last few months.

Driving Dollar Tree up was fourth quarter earnings that were up 26% year over year. The results were robust across the board, sales up 15.4% year over year, comp sales up 2.4% year over year and operating margins expanding 70 basis points to 16.2%.

Dollar Tree has been on a tear over the last five years, seeing its EPS and price steadily grow.

This steady uptrend has led to questions over whether the outperformance can continue. Part of Dollar Tree’s initiatives to keep up its out-performance includes adding frozen and refrigerated foods to its product line, as well as location expansion. However, other major dollar stores appear to be slowing, giving Dollar Tree, Inc. (NASDAQ:DLTR) a possible advantage to take market share and be an attractive opportunity for investors.

Family Dollar Stores, Inc. (NYSE:FDO) saw lower than expected earnings results last quarter, where company management also guided down future earnings. The company’s $0.69 EPS results for last quarter was up only a penny from the same quarter last year. This $0.69 was also on the low end of Family Dollar’s provided guidance of $0.69 to $0.78, due to lower margin products sales that contracted its gross margin around 120 basis points last quarter. Management also expects the gross margin to continue to remain under pressure for 2013; this leading to reduced EPS expectations in the range of $3.95 to $4.20 for 2013, which is down from the previous expected range of $4.10 to $4.40. Dollar General Corp. (NYSE:DG) also recently lowered its full year 2012 guidance, now expecting to post EPS in the range of $2.82 to $2.85, where previous consensus estimates was $2.86.

A couple of other major discount retail competitors include Wal-Mart Stores, Inc. (NYSE:WMT) and Five Below Inc (NASDAQ:FIVE). Wal-Mart posted better than expected earnings last quarter, with EPS of $1.67 per share, compared to $1.51 for the same quarter last year, and above $1.57 consensus. Wal-Mart has been performing relatively well with increased e-commerce investments and better access to international markets (read more about the discount retail’s attack on Wal-Mart). Wal-Mart also upped its annual dividend 18%, now paying $1.88 per share annually and boosting its dividend yield to 2.6%. Five Below is another discount retailer, a specialty one with a focus on merchandise for teen and pre-teen consumers. Five Below’s niche includes products all priced at $5 and below.

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