Sears Holdings Corporation (SHLD), Target Corporation (TGT) & Dollar Tree, Inc. (DLTR): Two Retailers to Sell and One to Buy

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A hidden money tree

That brings us to the hidden threat to lower-end department stores like Sears and superstores like Target – dollar stores. Over the past few years, dollar stores have been evolving from lower-end thrift stores into full-service discount superstores. Companies such as
Dollar Tree, Inc. (NASDAQ:DLTR), Dollar General Corp. (NYSE:DG) and Family Dollar Stores, Inc. (NYSE:FDO) have started carrying more fresh food, name brand household items, and cigarettes with the intended goal of stealing market share from Target Corporation (NYSE:TGT), Wal-Mart Stores, Inc. (NYSE:WMT) and Costco Wholesale Corporation (NASDAQ:COST). These dollar stores are also positioning themselves closer to lower-income neighborhoods, where fuel costs are a major concern. Lower-income shoppers are more likely to shop at closer stores if the products and prices are comparable to Wal-Mart Stores, Inc. (NYSE:WMT) or Target.

The strength of this strategy shines through with Dollar Tree, Inc. (NASDAQ:DLTR), which I consider to be the strongest company in the industry. Dollar Tree recently reported first quarter earnings of $0.60 per share, or $133.5 million, up from $0.50 per share, or $116.1 million, a year earlier. This topped the analyst forecast by three cents. Revenue also climbed 8.3% to $1.87 billion, meeting the consensus estimate. Same-store sales increased 2.1%.


Dollar Tree, Inc. (NASDAQ:DLTR) is also expanding aggressively, opening 94 stores during the quarter. Its stores are also getting bigger, with the square footage of locations rising 7% year-on-year to 41.2 million total square feet. I firmly believe that Dollar Tree’s strategy to ramp up the pressure against discount superstores will work, as seen with its strong top and bottom-line growth and rising same-store sales.

The Foolish bottom line

In conclusion, let’s compare the fundamentals of these three retailers to see if my opinions are justified.




Forward P/E





Price to Sales (ttm)





Return on Equity (ttm)





Debt to Equity





Profit Margin





Qty. EPS Growth (y-o-y)





Qty. Rev. Growth (y-o-y)





Sears Holdings




N/A



0.16



-28.06%



98.36



-2.33%



N/A



1.80%




Target




12.40



0.60



18.52%



106.58



4.09%



-2.00%



6.80%




Dollar Tree




15.64



1.47



41.12%



16.27



8.38%



21.70%



15.40%



Advantage



Target



Sears



Dollar Tree



Dollar Tree



Dollar Tree



Dollar Tree




Dollar Tree


Source: Yahoo Finance, 5/24/2013

While Target Corporation (NYSE:TGT) and Sears may look fundamentally cheaper at first glance, a look at the rest of these numbers show that Dollar Tree, Inc. (NASDAQ:DLTR), with lower debt, higher margins and double-digit top and bottom-line growth, would be a much better investment. In addition, if the economy crumbles again, Dollar Tree can thrive better in a recessionary environment than either Target or Sears.

The article Two Retailers to Sell and One to Buy originally appeared on Fool.com.

Leo 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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