The US retail industry is in a downward spiral as consumers remain wary of economic fallout. Even with these challenging circumstances, Dollar General (DG -4.27%) hasn't disappointed investors as it continues to grow. Let's see where the company is heading and how it stacks up with its competitors Dollar Tree (DLTR -3.88%) and Family Dollar (FDO.DL).

Third-quarter results
The company's net sales in the third quarter increased 10.5% to $4.38 billion from $3.96 billion in the year-ago quarter. Net income increased by 14% to $237 million or $0.74 per share. Same-store sales also grew by 4.4%.

Consumable sales remained on the higher side with 12% growth in the quarter. However, non-consumable sales, especially tobacco sales, struggled. Seasonal and home product sales grew by 7.3%, whereas the sales growth for apparel was only 2.4%

The company's net profit margin increased by 18 basis points to 5.42%, which was attributed to lower operating costs thanks to a decrease in labor costs.

What's cooking at Dollar General?
Dollar General has been increasing its store count over the past few quarters. From the start of fiscal 2013 until the third quarter, the company closed 22 stores and remodeled 53 others. It also opened 650 stores during the same time period. In this tough retail environment, the retailer has made the bold move of expanding to capture more market share; this move seems to be paying off as the company had solid comps growth in the latest quarter. To keep up the momentum, Dollar General plans to open about 700 new stores in fiscal 2014 and remodel or relocate approximately 525 stores; this will result in its store-selling square footage expanding by 6%-7% within 2014. In addition, a new distribution center in Pennsylvania is expected to become operational during the first quarter of fiscal 2014.

The company has said that it is going to sell and subsequently lease back approximately 233 of the 11,000 stores it currently owns, and it has already signed an agreement to do this. The deal will result in proceeds of $200 million to the company and it is expected to close very soon. The proceeds will be used to return value to shareholders via share repurchases. From the start of fiscal 2013 until the end of the third quarter, Dollar General bought back 7.8 million shares worth $420 million. Moreover, the company's board of directors recently authorized an additional $1 billion of share repurchases.

Dollar General has raised its earnings guidance from $3.15-$3.22 to $3.18-$3.22 as it expects a strong performance during the fourth quarter. For the full year, the company anticipates that its sales will rise by 10% to 11%, coupled with comparable-sales growth of 4% to 5%.

In the table above, we can see that Dollar General has provided a high year-over-year return of 24%. The low price to earnings ratio of the company suggests that it's a good bargain at this moment. Moreover, a low price-to-earnings growth, or PEG, ratio of 1.16 strengthens my belief that Dollar General is a value stock.

In the first quarter of fiscal 2014, Family Dollar Stores fell short of its earnings expectations as it reported earnings per share of $0.68. Sales growth was 3.2%, which was much slower than growth in the previous quarters. Comparable sales also grew by just 2% amid tough economic conditions. Keeping the economy in mind, Family Dollar has given conservative guidance for its full-year earnings. Now it expects to earn $3.25-$3.55, which is far less than its prior earnings guidance of $3.80-$4.15.

Dollar Tree had a mixed third quarter. The company's earnings per share fell to $0.58 from $0.68 in the previous year's quarter. Sales grew by 9.5%, while comps increased by 3.1% as both missed expectations by slight margins. The company lowered its guidance for the fourth quarter as it expects its comparable sales during the holiday season to be in the low single-digits. Now it expects fourth-quarter earnings in the range of $1.01-$1.07, whereas analysts' expectations stand at $1.10.

Final thoughts
The US retail industry is still struggling as it continues to battle tough economic conditions. Under these trying circumstances, Dollar General's performance isn't less-than-satisfactory. The company's third-quarter performance speaks for itself as earnings, sales, and comps grew at healthy paces.

Dollar General's strong outlook for fiscal 2014 and its plan to keep expanding its business prove that the company is on the right track. Financially, the company is sound and it looks to be undervalued with significant upside potential. Taking all this into account, I believe Dollar General presents a good investment opportunity at this point in time.