Discount retailer Dollar General
But Dollar General has seen an overall solid start to its year -- good enough to maintain its annual earnings forecast. This company could be a good deal for investors.
Discount retailers have done pretty well so far this year, as rising oil prices and a feeble economic recovery have forced price-sensitive consumers to go bargain-hunting. Low-income shoppers have flocked to stores such as Family Dollar
To boost its own market share amid this consumer shift, Tennessee-based Dollar General has said it isn't looking to raise prices even in the face of skyrocketing commodity costs, an interesting strategy for a company whose customers are about as loyal to their stores as Survivor competitors are to one another. Investors in Wal-Mart
A look at the numbers
Revenues for the company in the latest quarter rose 11%, to $3.45 billion. Same-store sales rose 5.4% as a strong a consumables segment heavily aided the top line. The company also opened 139 stores during the quarter and plans to open 625 locations overall this year.
Gross margins fell to 31.5% from 32.1% a year ago, in large part because the company had to implement even greater discounts to attract customers to its stores. But consumables are also lower-margin, so the stronger showing there helped drag overall margins down, too. Going forward, the company has made it a priority to improve these margins.
High gas prices took their toll on the company's bottom line, and further weakness in the company's apparel segment weighed on results as well.
But I think these are just minor blips, as the company seems on track for a strong year ahead. It hopes to earn between $2.20 and $2.30 a share (adjusted) in the current fiscal quarter, with revenues expected to climb by 11% to 13%.
The Foolish bottom line
With more new stores slated to open soon and an increased focus on driving sales growth as well as increasing profitability, Dollar General looks set for a strong year. Investors should take note.
Fool contributor Shubh Datta doesn’t own any shares in the companies mentioned above. The Motley Fool owns shares of Wal-Mart, and Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.