Whoa! This “Dollar Store” Isn’t Even a Dollar Store


Source:  Dollar General

Dollar General, Dollar Tree, Family Dollar Stores... when we talk about this triumvirate of discount variety chains we're comparing apples to apples, right?

Well, not exactly. Although Dollar General (NYSE: DG  ) , Dollar Tree (NASDAQ: DLTR  ) , and Family Dollar Stores (NYSE: FDO  )  are often viewed by investors, shoppers and analysts as concepts cut from the identical retail cloth, there is an odd one out in this group. Ignoring this distinction -- and treating these companies as equals on the same competitive playing field -- is a mistake that could steer your analysis way off course.

Do you prefer dividends or buybacks?
Here's the good news: Even though each of these companies has different levels of comparable growth, all three chains are making money. What they're doing with that money is where we start to see the differences.

First, there's the dividend darling. In the last reported quarter, Family Dollar saw sales inch up 3.2% to $2.5 billion, same-store sales slip back 2.8%, and net income retreat 2.9% to $78 million. Of course, nobody likes to see declines in same-store sales and profits, but Family Dollar continues to bring in the bucks.

On Jan. 16, Family Dollar raised its dividend by 19.2% to $0.31, which suggests that the bucks are continuing to pour in and the company continues to be confident about the future. CEO Howard Levine pointed out that the company has been raising its dividend for 38 years in a row.

If you're looking for growth, then Dollar Tree is the discounter that'll turn your head. Last quarter, Dollar Tree saw sales jump 9.55% to $1.88 billion which is starting to catch up with Family Dollar's sales of $2.5 billion. Dollar Tree's same-store sales went up 3.1% while adjusted earnings per share climbed 13.7% to $0.58.

While Dollar Tree doesn't pay a dividend, it is aggressively returning capital to shareholders in the form of a stock buyback program, which is set at $1 billion and due to be executed in full by June of this year.

So, while both Dollar Tree and Family Dollar both sell products priced at $1 or less a piece (at least 90% of Family Dollar's products are priced that way), they are different companies that have different results and different ideas about how to grow.

That brings us to a totally different player -- Dollar General -- and its different concept and different prospects.

It's hard to measure up when you're not playing the same game
You'd never look at Dollar General without comparing its results to Dollar Tree and Family Dollar. When the latter two fail to measure up to Dollar General -- or, vice-versa -- it certainly makes it easier to come to conclusions.

Don't make that common mistake.

The only true dollar store of the group is Dollar Tree. Family Dollar is the next purest play since, as mentioned before, the majority of its products fall squarely in the $1 parameter.

Despite outward appearances, Dollar General is altogether a different beast. Like Dollar Tree and Family Dollar, the retailer sells low ticket groceries and other cheap merchandise. But most of its products are actually priced at more than $1.

That last point gives Dollar General an important advantage. It's much easier for Dollar General to raise the prices of its food items, say by 3%, in response to inflation than it is for Dollar Tree. Dollar and Three Cent Tree just doesn't have the same ring to it.

Another advantage is that Dollar General can more easily introduce more products at higher price points. In fact, it recently added tobacco to its shelves -- a move that has certainly bolstered sales. 

Where should your investing dollars go?
Of the three variety store discounters, Dollar General is doing the best growth-wise of the three. Last quarter, Dollar General's net sales popped 10.5% to $4.38 billion, same-store sales flew up by 4.4%, and earnings per share soared 14% to $0.72. It was the 23rd quarter in a row with higher traffic and higher average ticket for the chain.

As for which one is the better buy? I'm a bigger fan of buybacks over dividends myself as that action increases earnings per share while saying a lot about management's confidence that the stock price will go higher.

All three companies buy back shares, but Dollar Tree has the most aggressive buyback program relative to its market cap. 

Make every dollar count
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Read/Post Comments (15) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 15, 2014, at 12:49 PM, JaneB wrote:

    You neglected to mention "Dollar Deals" which is the next generation of Dollar Tree and brings DT's $1 merchandise under the same roof with the stuff that Dollar General and Family Dollar carries. So you have $1 toilet brushes made in China next to $3 bottles of Lysol

  • Report this Comment On February 15, 2014, at 12:53 PM, nomorenj wrote:

    I only shop at the true Dollar Stores. The others are not a big saving as you will spend more and can find most stuff less at Walmart. I have found many $3 & $4 items at Dollar General, for $2.50 at Walmart.

  • Report this Comment On February 15, 2014, at 2:36 PM, gntlman wrote:

    Nomorenj, which one's are the true Dollar Stores?

    There's also that 99 cent only chain popping up everywhere. The word only is a lie.

  • Report this Comment On February 15, 2014, at 2:53 PM, gizzy wrote:

    I like the ' 99 cent only' store here. It is a true dollar store and most of the time the canned goods are 2 for . I also buy a lot of my produce there. Greeting cards are also 2 for as are a lot of other things.

  • Report this Comment On February 15, 2014, at 3:24 PM, bobreal wrote:

    Go to THE DOLLAR TREE; Where everything is ONE DOLLAR or LESS..

  • Report this Comment On February 15, 2014, at 3:40 PM, charlessgold wrote:

    they also sell alot of junk.. you can get the same items at the flea market for less. no sales tax, etc.

    tooth paste is a $1.00 small size at dollar store, at walmart $1.00 large size. .

    many things are not stocked at dollar store. limited inventory. and smaller packages. you might be getting cheated.

  • Report this Comment On February 15, 2014, at 9:20 PM, AorphiA wrote:

    Sure... all of them are dollar stores. I'm sure they would take as many dollars, that you are willing to part with... lol

  • Report this Comment On February 16, 2014, at 1:29 AM, bobc4012 wrote:

    @Charlessgold, I'm not sure what Wal-Mart you shop, but the only toothpaste at those where I live are at least $2 and up, unless you buy the small travel size.I buy the sensitive teeth toothpaste at Dollar Tree, made in the USA and is a full size tube (at least 4.5 oz). vs Sensodyne $5 or more. You do have to watch some of the brands are made in Mexico (I believe those same brands sold at Wal-Mart are also made in Mexico). When my daughter lived in our area with her doggies, I'd pick up those packages of meat/chciken mini-dog bones at Dollar Tree for $1, made in the USA and comparable in ingredients and net weight to the name brands sold at Wal-Mart for $3 or more.

    Likewise with your flea market - our fleas market is held at the state fairgrounds almost every Sat. and Sun. during the year (exception - the State Fair and, maybe, another event or two). Very little is dollar or less - you do better going to yard sales.

    I do agree with Bobreal that everything is a dollar and some of the stuff is actually made in the USA.

    @Nickey Friedman, I disagree that you can generally find most items sold at Dollar General and Family Dollar either cheaper or the same price at Wal-Mart. Especially, when most are made in China!

    I've gone into Dollar General every now and then and agree it is not a "dollar store". Very little is a dollar - maybe a candy bar you can buy at Wal-Mart for 89 cents! IMO, the Family Dollar store is not much better. To get to 90% of the items at $1, someone must have said, the have 9 of the same item at $1 and 1 item at $10. If one checks the price of each unique item, there are very few at $1 compared to the number at more than $1.

    One store not mentioned is "$5 and Below". I have found some good bargains at that store.

  • Report this Comment On February 16, 2014, at 8:50 AM, BigSeanNY wrote:

    Dollar General should seriously invest in XS Energy Drinks,this energy drink is a great product.

  • Report this Comment On February 16, 2014, at 2:25 PM, ronin60 wrote:

    BigSeanNY, Sorry but no one can invest in the XS energy drinks as they can only be bought from independent business owners like myself. But they are a great product and I can show you how to get them for yourself if you want.

  • Report this Comment On February 16, 2014, at 2:44 PM, SansasHound wrote:

    I agree with Charles on Walmart. I hate shopping there because of rude customers and employees alike, especially at Christmas. But I can usually find what I am looking for at the same price or less at Walmart. In addition, walmart will price match anything which makes shopping there more convenient. Not to mention I've had a cashier tell me that they aren't supposed to question BOGO's or sales prices. So I imagine alot of people get Ribeyes at buy one get one free prices without even showing a sales paper.

  • Report this Comment On February 16, 2014, at 3:20 PM, cantfoolme2da wrote:

    The one of the only true dollar store is Dollar Tree because everything in there is a dollar or less. However, if you have noticed recently the sizes have begun to shrink. What use to be 16 ounces is now only about 10 ounces. But their deals and product are in most cases top quality. If you look at some of the labels not only are some items made in China but also Mexico, Vietnam. I try not to buy any food products made in China or elsewhere because of the quality controls in those countries. We just have to be smarter consumers because these retailers will sell us Americans anything.

  • Report this Comment On February 16, 2014, at 3:55 PM, iandiann wrote:

    all these stores are nothing but rip offs

    yeah everything MIGHT be a dollar but the quantity and quality you get for that dollar is ridiculous

    they are all scams to make you think you are getting something cheep and saving money

  • Report this Comment On May 08, 2014, at 5:41 PM, Ksan3750 wrote:

    When reading the article about Family Dollar being 90% under $1 is crazy!! I worked there and that is not true. Also there problem is inventory a d shrink control. Did you guys not see the mess this place was on undercover boss?????

  • Report this Comment On September 27, 2014, at 9:19 PM, Borisbmx wrote:

    Would you write an article on Five Below ?

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