Trends in the Discount, Variety Stores Industry

NEW YORK, NY -- (Marketwire) -- 02/11/13 -- With the last-minute fiscal cliff deal, the U.S. economy averted a major crisis. The fiscal cliff deal, coupled with an improving labor market and a sharp recovery in the housing market, has lifted consumer confidence in the U.S. This is a good sign for discount, variety stores industry. However, increasing competition could put pressure on margins at companies such as Dollar General Corp. and Dollar Tree Inc.

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Confidence among U.S. consumers has been improving as the U.S. economy continues to recover. Consumer sentiment was also lifted by the passage of last minute fiscal cliff deal at the beginning of this year. The fiscal cliff deal ended a great deal of uncertainty.

Consumer confidence has also been lifted by the stabilizing labor market and a sharp recovery in the housing market. Data released last Friday showed that the U.S. economy added 157,000 jobs in January, while the unemployment rate was at 7.9%. Initial jobless claims are also hovering around five-year lows. Meanwhile, the housing market continues to recover strongly.

While the economy continues to recover, the U.S. consumer is still deleveraging. And this means that consumer spending is expected to remain tight. Consumers are likely to remain price-conscious as they continue to deleverage and this augurs well for discount stores such as Dollar General and Dollar Tree. However, as discount stores compete with each other to win customers, margin could be impacted in the future.

Later this month, Dollar Tree will release its financial results for the fourth quarter of fiscal year 2012. It will be interesting to see how the company performed during the crucial holiday season.

Back in November, at the time of the release of third quarter results, Dollar Tree had said that it expects sales in the fourth quarter to be between $2.20 billion and $2.26 billion, based on a flat-to-low-single digit comparable store sales increase. The company forecasted diluted earnings per share at $0.97 to $1.02 for the fourth quarter.

In the third quarter of fiscal 2012, Dollar Tree reported consolidated net sales of $1.72 billion, an increase of 7.8% over the same period in the previous year. President and CEO Bob Sasser said that sales increased in both basic and variety categories in the third quarter. The company's operating margin improved 40 basis points in the third quarter.

Dollar General reported its third quarter ended November 2, 2012 results in December. The company's net income for the quarter was $208 million, or $0.62 per share, compared to $171 million, or $0.50 per share reported for the same period in the previous year.

For the fourth quarter of fiscal 2012, Dollar General expects comparable-store sales to rise 3% to 4%. Back in December, Rick Dreiling, Chairman and CEO of Dollar General, said that although the company's performance over the Thanksgiving weekend and start of the Holiday Season was encouraging, the company continues to be cautious for the remainder of the year. However, since then a great deal of uncertainty has ended mainly due to the passage of the fiscal cliff deal. Dollar General's outlook for fiscal 2013 is therefore likely to be more optimistic.

Dollar General will release its fourth quarter results next month.

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