Dollar General Corp. (DG), Dollar Tree, Inc. (DLTR): Which Discount Retailer is Hitting it Big?

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Dollar General Corp. (NYSE:DG) announces its quarterly and year-end earnings before the market opens on March 25, 2013. The stock has gained 9.5% in the last one year. Currently, it is priced 16.7% lower than its 52-week high.

Dollar General Corp. (NYSE:DG) runs discount retail stores under the name Dollar Stores. It operates over 10,000 stores across 40 states. Its products include toiletry and cleaning items, canned food, clothing, and craft supplies. Two of their main competitors are Dollar Tree, Inc. (NASDAQ:DLTR) and Family Dollar Stores, Inc. (NYSE:FDO). Because these companies offer discounted standard living products, they generally thrive when the market is down. The real question is, can they thrive in a recovering market. With gas prices rising and uncertainty in the economy, these stores will likely continue to see growth.

Dollar Tree has seen a recent surge in the stock price. Their earnings growth has been strong and they reported same-store sales growth of 2.4%. Its earnings growth is nearly 19%, which is higher than the industry average of 15%. New stores also saw an increase in sales. Not only has the company been able to expand, but it has expanded with profitability. 2013 will see the addition of frozen and refrigerated products for Dollar Tree, Inc. (NASDAQ:DLTR) stores. Also, distribution centers will be expanded as part of its capital expenditure plan.

Family Dollar, on the other hand, hasn’t had the same level of success. It has missed earnings expectations and has had a decline in earnings for the last three quarters. This is largely due to an increase in sales of low margin products. Gross profit margin is extremely important for discount retailers.

Dollar General history

Dollar General Corp. (DG)

From 2010 to 2011, Dollar General Corp. (NYSE:DG) grew its revenue 10.5%. In 2012, this growth rate was 13.6%. A great sign of operational improvement is an increase in net profit margin. Dollar General has been able to increase its net profit margin for the last three years.

Year Ending 28-Jan-10 27-Jan-11 2-Feb-12
Net Margin 2.88% 4.82% 5.18%

For the last four quarters, revenue has not improved. The net profit margin has stayed steady between 5.24% and 5.47%.

In the most recent quarterly earnings report, the company discussed its four operating priorities: drive productive sales growth, increase gross profits, leverage process improvements and information technology to reduce costs, and strengthen and expand Dollar General Corp. (NYSE:DG)’s culture of serving others.

Dollar General plans to offer tobacco products in 2013. This will be a major change to their business model. The tobacco industry is worth more than $710 billion, and is growing at 4.5% every year. Dollar General is also finishing the process of opening 625 new stores. Growth through expansion is their model.

It is also offering more products through a private brand to increase their profit margin on cost of goods. The gross margin has been steadily and slowly decreasing over the last four quarters, from 32.17% to 30.93%. While increasing their gross profit is the goal, it has not been accomplished it yet.

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