Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Dollar Stores That Deserve Your Bucks

By

Deep discounters are thriving in this recession.

PrintPRINT
Friday's successful launch of Dollar General's (DG) IPO suggests the recession is a good time for deep discounters, or stores that offer rock-bottom prices to cash-strapped shoppers.

Dollar General operates about 8,700 stores in 35 states, most in small towns and about 30% of the total in low income neighborhoods. Dollar General plans to open about 600 new stores next year and remodel or relocate another 500. The company's same-store sales rose about 8.5% for the fiscal quarter ending in July.

In July 2007, Dollar General was taken private by KKR and Goldman Sachs (GS). Dollar General priced its initial shares at $21 each. In mid-day trading Monday, the stock rose 1% to $22.97.

There are few barriers to entry in the sector and deep discounters face increased competition from Walmart (WMT), the world's largest retailer. Walmart offers home electronics, furniture, toys, and pharmacy services in addition to low-cost products similar to Dollar General, Family Dollar Stores (FDO), 99 Cents Only Stores (NDN) and Dollar Tree (DLTR).

The great unknown, of course, is just how many new customers at deep discounters will return to more upscale stores once the economy rebounds. In the meantime, there's little product differentiation among the deep discounters, and competition is fierce. Investors looking for a seasoned company in the sector might want to take a look at Dollar Tree and Family Dollar.

Dollar Tree's same store sales grew by 6.5% in the third quarter, continuing a solid performance in the last five years that reflects new store openings and acquisitions.

"Despite being a lower-margin category, consumables have helped boost store productivity by increasing the frequency of customer visits," Zoe Tan, an analyst at Morningstar, says in a research report. "In addition, we think Dollar Tree's decision to increase the number of stores accepting Electronic Benefits Transfer cards and food stamps allows it to reach a broader range of consumers. In our view, these measures will continue to drive incremental store traffic and expand the average customer transaction size for this deep-discount retailer."
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE