Dollar stores are outpacing their larger retail brethren, and dollar store stocks are flourishing. Here are four that stand out.
I have to laugh every time I walk into a dollar store. You see, my mother always tried to drag me into these very discounted stores when I visited her, but I didn’t want any part of what I assumed were dark, dirty, cheapo stores that sold off-brands! However, after seeing the bags of goodies she would bring home—including name brands—at incredibly discounted prices, I decided to see for myself.
And I’m glad I did! I have thrown some very successful parties with decorations and silly prizes coming from dollar stores. The savings are immense. In fact, a couple of years in a row, I held Halloween events with decorations and a variety of photo props—for less than $50!
Looking at the data on dollar stores, it’s easy to see that I’m just one of millions of shoppers who are avid dollar store shoppers. Statista.com reports that there are currently more than 34,000 dollar stores across the United States.
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The big four dollar store stocks that are publicly traded are:
|Stock||Symbol||2020 Sales ($)||# of Stores (2020)|
|Dollar General||DG||33.75 billion||17,534|
|Dollar Tree||DLTR||23.61 billion||15,700|
|Big Lots||BIG||6.199 billion||1,400|
|Five Below||FIVE||1.962 billion||1,000|
Dollar store sales—and the companies’ stock prices—have been on a pretty good trajectory for the last few years, and COVID-19 propelled them even further. Last year, total dollar store sales rose 12% (compared to 7% growth in 2019). As people lost their jobs due to the pandemic, the demand for inexpensive groceries and household items took off. Rural areas—with fewer shopping choices—were especially strong.
IBISWorld is predicting that dollar store revenues will rise to $94.2 billion this year, although profits may take a bit of a beating due to rising freight costs and labor shortages, due to COVID.
Dollar Store Stock #1: Dollar General (DG)
Dollar General (DG), with products priced mostly under $5, walloped the average sales growth in the industry, posting an increase of 19%, and it also built its market share to an enviable 61% of its sector’s revenues (with the rise coming mostly from stealing its competitors’ shoppers!). Believe it or not, this company has surpassed venerable retailer Macy’s sales!
It seems like there’s a Dollar General every couple of miles. Here in my small town in Tennessee, there are 20!
And while Dollar General has been popping up new stores very rapidly for the past few years, it is now getting ready to expand its target markets. The company plans to open stores under the Popshelf brand (30 in this fiscal year), marketing goods to suburban affluent customers. And in another move to attract new customers, the company is also in talks with the CDC to become a distribution center in rural areas without big pharmacies, for the COVID-19 vaccine.
More than 25 analysts follow DG and are forecasting a median price target of 243, with a high estimate of 292 and a low estimate of 185.
Dollar Store Stock #2: Dollar Tree (DLTR)
Dollar Tree (DLTR), which also owns Family Dollar, saw 6% sales growth last year. The company recently made headlines when it announced plans to raise prices on most items to $1.25. It is the first store on my list when I’m looking to buy decorations or even cute boxes to hold candy that I make at holidays.
More than 24% of its customers are classified as “affluent,” making more than $100,000 per year. The company is boosting its presence by combining the Dollar Tree/Family Dollar stores in some rural areas. Its Family Dollar stores are now using Instacart for same-day delivery on certain products, and that brand is expanding its fresh produce and meat sales this year. In Dollar Tree stores, last fall the company installed a Crafter’s Square section to accommodate the uptick in demand for homemade goods. Dollar Tree is also expanding its Dollar Tree Plus brand, which carries merchandise at multiple price points (usually $3-$5), to 500 stores from the current 120.
In my Wall Street’s Best Digest newsletter, contributor John Reese of Validea Hotlist Newsletter recently had this to say about DLTR:
“Dollar Tree is considered a ‘True Stalwart,’ according to this methodology, as its earnings growth of 18.24% lies within a moderate 10%-19% range and its annual sales of $25,702 million are greater than the multi-billion-dollar level.
“This methodology looks for the ‘Stalwart’ securities to gain 30%-50% in value over a two-year period if they can be purchased at an attractive price based on the P/E to Growth ratio. DLTR is attractive if DLTR can hold its own during a recession.”
Dollar Store Stock #3: Five Below (FIVE)
Five Below (FIVE) sells items for $5 or less, with most products directed toward teens. In its second quarter, the company beat analysts’ EPS estimates by $0.04, earning $1.15. Sales grew to $646 million, slightly missing expectations.
Mike Cintolo, editor of Cabot Growth Investor and Cabot Top Ten Trader, has been in and out of FIVE many times given his propensity for “cookie-cutter” stocks with a proven track record of expansion.
Right now, the stock is perched at its moving averages and right in the middle of its recent trading range. Earnings are being reported December 1, after the close, and should serve as a catalyst for the stock. A significant beat could lift share prices back to recent highs and break the stock out of the levels it’s been at for most of the year.
Dollar Store Stock #4: Big Lots (BIG)
Big Lots (BIG)—my favorite dollar store—actually sells products at many price points, but they are heavily discounted. If you are looking for inexpensive spices, gourmet food gifts, or great holiday paperware, this is the store for you!
For its second quarter, the company reported net income of only $37.7 million, compared to last year’s results of $452 million. Sales were down, to $1.46 billion for the quarter, with comparable sales down 13%. EPS of $1.09, well behind the $11.29 reported in the year-ago quarter.
The company has attributed the declines to significant supply-chain hurdles. If it’s already hard for manufacturers to create products, it’s doubly hard to create the excess products that Big Lots relies on. Third-quarter earnings will be reported December 3 and should shine additional light on the company’s expectations for 2022.
With the stock having given back all of 2021’s gains in the back half of the year, it would be prudent to wait for supply-chain headwinds to clear before initiating any new positions. That being said, the consumer trends that drove early growth are likely here to stay.
I don’t expect sales to grow as dramatically, post-COVID, but with the stores’ expansion into other markets and pricier products, I expect these dollar stores will continue to thrive.
I’m partial to Big Lots, but which of these dollar stores is your favorite (as a consumer or an investor)?
Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. As a lecturer and educator, Nancy has led seminars for individual investors at the National Association of Investors, Investment Expo and the Money Show. She has also taught finance, economics and banking at the college level, and has been quoted extensively in The Wall Street Journal, Investor’s Business Daily, USA Today, and BusinessWeek. Now let her give you the tools and resources, including a monthly magazine, for gaining the peace-of-mind to live comfortably now and in retirement in her Cabot Money Club.Learn More >>
*This post has been updated from an original version, published in 2018.