I mentioned Dollar General (ticker: DG) and Dollar Tree (ticker: DLTR) in my book “The rule of 10 baggers“. In 5-4, I also have a in deep analysis of Costco (ticker: COST).
Commonalityn
in-Off-the-radar
These two companies continued to expand their business over the past decade. However, they attracted fewer media report because most media get used to report the mega wholesale retailers like Walmart (ticker: WMT) or Costco (ticker: COST), or e-commerce and technology giant Amazon (ticker: AMZN) and look down these smaller brick-and-mortar retail chian store targeting lower-income customers.
Business commonalities
Dollar General (ticker: DG) and Dollar Tree (ticker: DLTR) are the two largest American retailers with many commonalities, including:
- Discounted and low-priced store retail store chains, especially in suburbs areas and lower income customers.
- Inflation could be the tailwinds for both stocks because both retailers usually become popular destinations during economic downturns as cash-strapped shoppers hunt for bargains.
- Traditionally been good defensive stocks.
The differences
Dollar General
Dollar General is not actually a “dollar” store, more precisely it should be a discounted chain store.
Dollar Tree
As compared to Dollar Gernal, Dollar Tree previously sold all of its products for US$ 1.0, but raised to US$ 1.25 in 2021.
Dollar Tree acquired Family Dollar in 2015, Family Dollar sells most of its products for less than $10.
Business performance and valuation
How is the business performing?
| Year 2021 | Dollar General | Dollar Tree |
| Revenue | 34,220.4 million (+1.4%) | 26,321.2 million (+3.18%) |
| Gross margin | 31.6% | 29.43% |
| Operating margin | 9.42% | 7.02% |
| Net margin | 7.01% | 5.04% |
| Total stores | 18,356 | 16,162 |
| 2016-2021 revenue CAGR | +9.2% | +4.9% |
| 2016 gross margin | 30.8% | 37.3% |
| 2016-2021 EPS CAGR | +18.1% | +8.9% |
Stock valuation
| Index | Dollar General | Dollar Tree |
| Share price | 230.8 | 150.09 |
| Market capitalization | 52.391 billion | 33.704billion |
| P/E | 23.66 | 22.87 |
| P/S | 1.57 | 1.31 |
| Dividend yield | 0.95% | 0% |
| Share performance in past 5 years | +230% | +120% |
Dollar General is a better bet
Investors prefer Dollar General
From above two tables, Dollar General attracted more investors. The reasons might be:
- Focus on rural areas exposed it to less competition
- Grow faster
- Better growth rate on revenue, EPS and margin rate
- Gross margins improved
- Grow organically, not through acquisitions
Dollar General pays dividend
While both companies are trading with same value multiples, Dollar General has an edge of paying dividends of nearly 1%.
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