Dollar General, We Salute You

by Marc Bastow | September 5, 2012 1:42 pm

All hail the General!

Dollar General (NYSE:DG[1]), that is — an InvestorPlace Real America Index component[2] that just took the discount store segment and shook it out of the doldrums.

The retailer announced a blowout second quarter Wednesday[3], as quarterly revenues gained 10% on same-store sales that improved 5% — for comparison’s sake, that same-store growth is better than industry leaders Wal-Mart (NYSE:WMT[4]) and Target (NYSE:TGT[5]) — and earnings surged a whopping 46%.

Total sales are now forecast to grow between 8% to 9% for the year, and DG improved its full-year earnings outlook from $2.68-$2.78 per share to $2.77-$2.85, with the middle of the range hitting Wall Street expectations.

Another piece of good news? A new $500 million share repurchase program on top of one already in place that has $15 million remaining. Of course, I always prefer a dividend to buybacks[6], but considering DG’s consistent growth ramp — up 270% since going public in late 2009 — I’ll keep the payout complaint to a dull roar.

Dollar General’s results are a breath of fresh air coming on the heels of what can be described as a disappointing summer for the rest of the segment:

So what the heck is going on with one of my favorites[13]?

Despite some recent upbeat news on general retail sales and employment in low-wage job sectors, unemployment remains high[14], and most employment gains are being made on the low-wage end — which means consumers are looking for deals, discounts and bargains.

With most items (including groceries) costing less than $10 at Dollar General, consumers have flocked to its stores. In a company press release[15], DG indicated that its consumable business — which includes expanded candy, snacks and grocery sections — grew more than non-consumables, though DG also saw increase sales in its apparel, sleepwear and intimates sections. So, a nice job all the way around.

What’s in store for Dollar General down the road? Mainly expansion, remodeling and relocations.

The company anticipates adding to its current total square footage by around 7%, including 25 more remodeled stores than originally forecast, and a total of 625 new stores added for all of 2012. With more than 10,000 stores, DG boasts more locations than any other U.S. retailer.

That should help DG stay on pace to maintain the 18% earnings growth expected this year through the next fiscal year, too. And that makes its forward P/E of 15 sound all the more reasonable.

Keep your eyes on this segment. As far as stocks go, dollar stores are doing nicely year-to-date … and perhaps the alarm bells in the discount sector are a bit overblown[16]. And no matter what the outcome of the election, the economy isn’t going to rehabilitate overnight, which means discount stores should still be en vogue.

And for right now, Dollar General is king of that hill.

Marc Bastow is an Assistant Editor at As of this writing he does not hold a position in any of the aforementioned securities.

  1. DG:
  2. Real America Index component:
  3. announced a blowout second quarter Wednesday:
  4. WMT:
  5. TGT:
  6. I always prefer a dividend to buybacks:
  7. DLTR:
  8. missed on Q2 revenues and earnings:
  9. BIG:
  10. poor quarter:
  11. FDO:
  12. back in June:
  13. one of my favorites:
  14. unemployment remains high:
  15. company press release:
  16. are a bit overblown:

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