The dollar stores in the United States are in great shape. Cash-strapped consumers continue to pinch pennies. A combination of the payroll tax hike and the ongoing sequester have only served to broaden the customer base for the nation’s biggest dollar stores, and incoming earnings reports are confirming this trend.
The market was treated to a solid third-quarter report from industry heavyweight Family Dollar Stores, Inc. (NYSE:FDO), and in return, sent the stock up more than 7% on the day of the announcement. Here’s why there’s still room to run for Family Dollar Stores, Inc. (NYSE:FDO), as well as the rest of the dollar store chains.
The downtrodden consumer is a dollar store’s best friend
Consumers are undeniably scaling down their shopping, opting for dollar stores instead of higher-status peers. To illustrate, Family Dollar Stores, Inc. (NYSE:FDO) revealed that its net sales increased 9% during the third quarter, with same store sales (which measures only sales at locations open at least one year) rising nearly 3% year over year.
This was mainly due to the ongoing roll-out of new items at Family Dollar, which are growing strongly and should bring more customers through the doors going forward. In total, sales in the company’s Consumables category, which includes food, health and beauty aids, and tobacco, rose 14.8% during the quarter.
Moreover, the company gave a very positive outlook on the rest of the year. Fourth quarter diluted earnings per share are expected to rise between 19% and 26% year over year. For the full year, diluted EPS is expected to clock in between $3.77 per share and $3.82 per share, compared to $3.58 in fiscal 2012.
Family Dollar Stores, Inc. (NYSE:FDO) isn’t the only dollar store executing admirably throughout 2013. Dollar Tree, Inc. (NASDAQ:DLTR) and Dollar General Corp. (NYSE:DG) also rose strongly on the day of Family Dollar Stores, Inc. (NYSE:FDO)’s earnings results, a sign of broad industry optimism.
Both Dollar Tree, Inc. (NASDAQ:DLTR) and Dollar General Corp. (NYSE:DG) have seen great results in recent quarters. In its most recent fiscal year, Dollar Tree 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.
Then, in May, Dollar Tree, Inc. (NASDAQ:DLTR) reported record first-quarter results. Net sales increased 8.3% to a record $1.87 billion, with diluted EPS rising 18% from the year-ago period.
Meanwhile, Dollar General Corp. (NYSE:DG) had a fantastic year itself, reporting record sales, operating profit, and net income for fiscal 2012. The good times kept rolling in the first quarter, with adjusted EPS rising 13% on the back of 8.5% growth in net sales.
Although Family Dollar Stores, Inc. (NYSE:FDO) is the only stock of the three that pays a dividend, both Dollar Tree and Dollar General Corp are deeply committed to providing shareholders with meaningful returns, and have demonstrated that commitment with strong share buybacks.