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How Dollar General Corp. Is Doing Discounting Better Than Walmart Stores Inc.

By Motley Fool Staff – Mar 23, 2016 at 2:00PM

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It's not low prices alone that have been powering the deep discount chain's ongoing growth streak.

Last week, Dollar General (DG -1.82%) hit a 52-week high after reporting record sales for the fourth quarter.

In this clip from the Motley Fool Money podcast, Jeff Fischer explains how the deep discount retailer has been able to consistently perform so well even as larger chains like Walmart (WMT -0.73%) are struggling. He also touches on Dollar General's plans for future growth to keep the momentum going.

A transcript follows the video.

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This podcast was recorded on March 11, 2016. 

Chris Hill: Discount retailer Dollar General hitting a 52-week high after putting up record sales in the fourth quarter. I have to be honest, Jeff, this one kind of snuck up on me. This is a discount retailer that has very quietly put up a pretty phenomenal 12 months.

Jeff Fischer: Yeah, and even longer than that, Chris. The stock has had a good five-year performance. The company actually earns pretty strong returns on equity and capital, especially for a discount retailer. Strong earnings growth in the past, and expected in the future, too. They have about 12,000 locations. They expect to add another 900 locations this year. And, they're looking into opening smaller footprint stores. The large stores will still be their main bread-and-butter, but they see an avenue into new markets with smaller locations, too. So, they're just winning by selling your everyday branded products -- typically, everything from Post (POST -1.16%) to Kellogg (K -0.92%) to Huggies -- at good prices, and customer surveys are positive, so traffic is increasing. Average ticket size is growing. They're doing things right. I can't say from experience that I know the experience, because I don't. But I wish I had five years ago.

Hill: I'm just wondering why Dollar General is able to put up this kind of track record over the last few years, when, as we've talked about a bunch of times before, Walmart just continues to struggle. And, obviously, Walmart is a much bigger company, a much bigger retailer, and maybe therein lies the problem. But it really seems like, from an operations standpoint, the folks who are running Dollar General just have a better handle on things.

Fischer: It's anecdotal, perhaps, but part of it is location. With their smaller stores, they're able to put stores closer to customers than Walmart, which needs so much room to put in their giant stores. So they go in and take market share, and then people realize they can get most of their staples at these stores for a competitive price, and I think they've just been taking market share from the Walmarts of the world.

Chris Hill has no position in any stocks mentioned. Jeff Fischer has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Post Holdings. 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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