Dollar General Shareholders Got Much More Than a Dollar

Dollar General Shareholders Got Much More Than a Dollar

While many of the big-box retailers seem to have to fight tooth and nail for every buck this holiday season, Dollar General has seen the greenbacks flow in with ease. As evidenced by its third-quarter results, the discount retailer's business is taking charge like never before, right along with Family Dollar Stores and Dollar Tree .

Dollar General's results
Dollar General reported its fiscal third-quarter results on Dec. 5. Net sales surged 10.5% to $4.38 billion. Same-store sales jumped 4.4%. Earnings per share leaped 14% to $0.72. It was the 23rd consecutive quarter with an increase in both traffic and average ticket.

CEO Rick Dreiling credited the successful quarter to "merchandising initiatives" that included the introduction of tobacco products. He said that Dollar General is continually gaining market share.

Despite what Dreiling described as an "ongoing challenging consumer environment" and the company being "cautious on the current macroeconomic trends," Dollar General raised its full-year fiscal 2013 guidance from a range of $3.15-$3.22 to a range of $3.18-$3.22.

Dollar General plans to open new stores and expand its existing stores. It will add a total of 6%-7% total store selling square footage. The company also announced an additional $1 billion buyback, equal to roughly 5% of the company's market cap, on top of the $200 million still remaining from its earlier authorization. Dollar General was running low on what was left over from the previous buyback plan since it repurchased $200 million worth of stock during the last quarter alone. For a company that's supposedly worried about the economy, it seems to be firing on all cylinders.

The one main soft spot, as pointed out by CFO David Tehle once and Dreiling twice during the conference call, was that there are six fewer holiday shopping days between Thanksgiving and Xmas than there were last year. Dollar Tree CFO Kevin Wampler also mentioned this calendar issue during his company's conference call. He called those six fewer days a "$25 million sales challenge."

Speaking of Dollar Tree
Dollar Tree's results were also quite strong. While the economy may be a challenge for retailers, it doesn't seem like the discount small-ticket retailers are feeling the pinch. In its last quarterly report, Dollar Tree sales jumped 9.5% to $1.88 billion. Same-store sales popped 3.1%. Adjusted earnings per share surged 13.7% to $0.58. While CEO Bob Sasser did mention a "very cautious consumer environment," he provided a bit of detail that explained that the situation was actually helping the chain as new, budget-constrained consumers turn to the dollar stores to help balance their budgets.

Family Dollar
For Family Dollar, it was a similar story though less pronounced. In its last quarter, sales rose 5.8% to $2.5 billion. Same-store sales were flat. Adjusted earnings per share climbed 14.7% to $0.86. While Family Dollar's sales numbers weren't nearly as good as the numbers from Dollar General and Dollar Tree, both Family Dollar's sales and earnings for the quarter hit new records. CEO Howard Levine called it a "tough sales environment."

Foolish final thoughts
It's interesting to read and hear how negative all three of these discount dollar stores are about the economy yet all three posted impressive results. This is particularly true for Dollar General as aggressive expansion plans and stock buybacks sure don't imply that the company is too worried. In fact, when pressed in the conference call Dollar General CEO Dreiling sounded less cautious by saying, "There's no doubt the environment is creating more of our core customer." Fools should take a close peek at Dollar General.

Shaking the dollar tree
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Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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