Which discount retailer will hit it big? | Build. Invest. Grow.

Dollar General Corporation?(NYSE:?DG)?announces their quarterly and year-end earnings before market open on March 25^th, 2013. The company has had a 9.5% increase in their stock price this year. Currently, it is priced 16.7% lower than its 52 week high.

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Dollar General Corporation runs discount retail stores under the name Dollar Stores. They operate over 10,000 stores and are located in 40 states. Its products range from toiletry and cleaning items, canned food, clothing, and craft supplies. Two of their main competitors areDollar 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, theses stores will likely continue to see growth.

Dollar Tree has seen a recent surge in stock price. Their earnings growth has been strong and they reported same store purchase growth of 2.4%. Its earnings growth is near 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 stores. Also, distribution centers will be expanded as part of its capital expenditure plan. These will likely fuel growth for the company, as well.

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 to low margin products. Gross profit margin is extremely important for discount retailers.

Dollar General history

From 2010 to 2011, Dollar General grew its revenue by 10.5%. In 2012 this growth rate was 13.6%. A great sign of operational improvements in 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, revenues have not been growing. The third quarter of fiscal year 2013 was only 94% of Q4 for fiscal year 12. This is primarily due to a significant 6% drop in earnings in the quarter ending May 2012. 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?s culture of serving others.

Dollar General plans to offer tobacco products for sale in their store in 2013. This will be a major change to their business model. The tobacco industry is more than $710 billion and is growing at 4.5% every year. Dollar General also is 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 margins 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 accomplished it yet.

Earnings release

Earnings should come in close to $.90 per share. This would bring fiscal year earnings to $2.83 per share. This is an increase of 21% from last year. This could be the fourth consecutive growth in earnings per share.

So, what does this mean for the stock price?

Most of these gains are already priced in the stock as it is today. It closed at $48.03 on March 13^th, 2012. The near term price target for Dollar General is $50.29 per share.

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Source: http://buildinvestgrow.com/2013/03/14/which-discount-retailer-will-hit-it-big/

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