Are Family Dollar and Dollar Tree the Same Company

According to Morningstar analyst Michael Keara, 40% of customers who visit dollar stores rely on some form of government help. The recession may be over, simply 1 of its legacies – the popularity and growth of dollar stores – is here to stay.

However, the pace at which major dollar store chains – Family unit Dollar ( FDO.DL ), Dollar General ( DG 2.27% ) and Dollar Tree ( DLTR -2.06% ) – have been expanding during the past years has had some cannibalization effect which impacted aforementioned-store sales. One can discover several dollar stores co-existing within a five-mile radius in many markets.

The impact of cannibalization tin can affect one or more than players as far as their same-store sales, or comps, are concerned.

Family Dollar affected
This is exactly what ane can see in the quaternary-quarter report that Family Dollar posted this month. Comps stayed apartment against the company's before expectation of ii% growth. This in itself was enough to cause a fall in share toll. Family Dollar has posted the weakest twelvemonth-to-date gains amid the iii dollar stores. It has also been abaft the Dow Jones Broadline Retail Index.

FDO Chart

FDO data by YCharts

The nearly flat comps of Family unit Dollar were rather unimpressive in comparison with Dollar General's impressive same-store sales growth  of 5.i% and Dollar Tree'due south 3.7% bound in their latest quarters. Family unit Dollar was clearly nowhere near its peers. Still, not all is lost for Family unit Dollar. Remember, nosotros are comparison this to comp gains of 10.5% in the year-ago quarter when Family Dollar had launched more than 1,000 items.

Family Dollar reported a 5.viii% increase in revenue to clock $ii.5 billion versus the year-ago quarter. The star performer was the consumables category with an viii.three% jump. Dress was the worst performer which witnessed a decline of four.9%. This, however, wasn't enough to trounce consensus estimates of $2.57 billion. Earnings came in at $0.86 per share, upwards 14.7% from the twelvemonth-ago quarter.

A few positives
Despite sales being pressured, Family Dollar had some positives to avowal about. One was better-than-expected sales of refrigerated and frozen food for which information technology partnered with McLane. In addition, the average weekly sales per store increased.

Going forward, Family Dollar aims to add 200 more private-branded items in order to drive margins upwards. In addition, the consumables retail market is worth $800 billion in the U.S. and Family Dollar is focused on improving its presence there. Family unit Dollar plans to add 525 new stores in fiscal 2014 to grab a larger share in the consumables retail marketplace space.

What Dollar Full general and Dollar Tree are up to
Family Dollar will have to be on its toes to grab share away from peers that have been doing well. Dollar General has performed well in the past and this momentum has carried over to 2013. In financial 2012, Dollar General registered tape sales, operating profit, and net income and the trend remained the same in the 2d quarter of 2013. Its adjusted earnings per share increased eleven.half-dozen% on the back of an xi.iii% growth in cyberspace sales. The consumables category was the driving force backside the solid results that the visitor posted .

If we look at Dollar Full general's performance during the final 3 years, we find that it has consistently grown revenue and cyberspace profit. In addition, it has also reduced its debt on the back of potent costless greenbacks menstruation generation as shown in the nautical chart below. For 2013, management expects same-shop sales growth of four% to v% and full sales are expected to rising by ten% to 11% year over yr .

DG Revenue TTM Chart

DG Acquirement TTM data by YCharts

Just similar Family Dollar, Dollar General has been witnessing a boost in sales for several months now after adding tobacco products to its lineup. Demand has been strong for tobacco products, fresh food, candy and snacks. Higher traffic and an increase in the average transaction count led to five.1% growth in comparable-store sales in the previous quarter, which was the strongest comps proceeds among the three.

Going ahead, Dollar General wants to continue the growth momentum intact. Hence, information technology plans to open 650 new stores which is upwards from 635 forecasted previously. In addition, it plans to remodel or relocate about 550 stores .

Compared to Dollar Full general and Family unit Dollar, Dollar Tree is the smallest dollar store. However, Dollar Tree is amidst the nearly successful single-cost- signal retailers in the U.S. Dollar Tree operates more 4,842 stores across 48 states in the U.Due south. and five in Canada . In the second-quarter, it reported a ix.8% increase in earnings in comparing with the same quarter last twelvemonth. The company also reported year-over-year revenue growth of 8.eight% with total sales reaching $1.85 billion .

I of the challenges that Dollar Tree needs to address is optimizing its supply chain direction. This involves the process of identifying a wider option of core items that should always exist in stock at all locations. Customers typically don't like to find fast moving items go out of stock in a day or ii, equally seems to exist happening at many locations. If not handled properly, this could lead to a high attrition rate and fall in comps as consumers switch to other dollar stores or disbelieve retailers.

The takeaway
Competition among the dollar stores is intense. As an investment, valuation does not favor Family Dollar. At a abaft P/E ratio of 18.28 Family Dollar isn't very cheap in comparison with Dollar Full general which trades at a ratio of 19.65 or Dollar Tree which trades at a ratio of 20.98.

In my opinion, investors should consider either Dollar General or Dollar Tree for an investment over Family Dollar. The first 2 dollar stores have been posting good growth numbers and accept been expanding their shop counts at a rapid stride.

This commodity represents the stance of the author, who may disagree with the "official" recommendation position of a Motley Fool premium informational service. We're motley! Questioning an investing thesis – even ane of our ain – helps united states all remember critically about investing and make decisions that help us become smarter, happier, and richer.

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Source: https://www.fool.com/investing/general/2013/10/30/family-dollar-dollar-general-or-dollar-tree-whos-t.aspx

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