The 3 Worst Discount Retailers by Same-Store Sales Growth

Dollar Tree, Dollar General, and Tuesday Morning have posted better same-store sales growth than Target, Wal-Mart, and Big Lots. Are smaller store formats better investments for 2014?

Jan 15, 2014 at 3:02PM

Investors can use performance metrics to help them understand what's behind growth or a decline in net sales. One of the most commonly used measures of performance in the retail industry is same-store sales growth, or comparable-store sales. This measure allows investors to know if an increase in sales is a result of sales rising at new or existing stores, and the result for the latter is key since high sales growth at new stores is expected.

This article is the first part of a two-part series that compares the same-store sales growth rates of Family Dollar, Dollar Tree, Dollar General, Tuesday Morning, Target (NYSE:TGT), Wal-Mart (NYSE:WMT), and Big Lots (NYSE:BIG). Specifically, this article will focus on the three worst companies as measured by same-store sales growth. The next article will focus on the three best companies as measured by same-store sales growth.

And the winner is...
Target came in at No. 3 with same-store sales growth of 0.90% in the most recent quarter and 0.50% in the first nine months of the year, according to the third quarter 10-Q. The company calculates same-store sales using stores that have been open for at least 13 months. The company's main issue is the decline in the number of transactions, which declined 1.3% in the third quarter and 1.5% for the year. The number of units per transaction also fell by 1.1% in the third quarter. The only variable that allowed Target to maintain its earnings was an increase in prices, which went up 3.3% in the third quarter.

Wal-Mart came in at No. 2 with same-store sales growth of -0.20% in the third quarter and -0.60% for the first nine months of the year, according to the third quarter 10-Q. "The total U.S. comparable store and club sales were negatively affected by lower consumer spending primarily due to the slow recovery in general economic conditions, and the 2% increase in the 2013 payroll tax rate," said Wal-Mart in its most recent earnings report.

Big Lots came in at No. 1 with the worst same-store sales growth of -2.5% in the last quarter, and -2.6% for the first nine months of the fiscal year, according to the third quarter 10-Q. Big Lots calculates same-store sales using stores that have been open for at least 15 months. This has the effect of lowering same-store sales growth in comparison with a calculation which uses stores that have been open for 12 or 13 months. So, to be fair, part of the reason Big Lots is No. 1 on this list is because of this calculation. The real issue, however, is the decline in same-store sales for products in the Home, Hardlines, Toys, and Electronics categories.

The Foolish bottom line
Target, Wal-Mart, and Big Lots all had a challenging year in 2013. Target provided unit-level detail for the decline in transactions, Wal-Mart provided a macro-economic theory, and Big Lots blamed the decline on specific product categories. Each one claimed different issues, but the the theme shared by these companies is size. These are all relatively large discount retail companies when compared to their smaller peers.

Family Dollar, Dollar General, Tuesday Morning, and Dollar Tree all have less square feet to manage and better growth rates than their larger competitors. The more square footage you have the better you must be at managing inventory and the more traffic you need to keep the inventory churning. Since earnings tend to follow same-store sales growth, Fools should stick with small-box stores in 2014.

Wal-Mart's on the decline
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Fool contributor B Bryant 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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