Family Dollar Stores, Inc. (FDO): A Discount Retailer to Watch

Competition

The expansion is of great importance here as Family Dollar Stores, Inc. (NYSE:FDO) is competing against Wal-Mart Stores, Inc. (NYSE:WMT) and Dollar General Corp. (NYSE:DG) both of which are bigger in size as compared to Family Dollar. Its 7,600 stores are less than Dollar General’s more than 10,600 stores while Wal-Mart has an identical count as well.

Wal-Mart Stores, Inc. (NYSE:WMT) is also ahead of dollar stores in pricing its products as Bloomberg Industries found in a survey. According to the survey, Wal-Mart beat Dollar General in pricing 100% of the time when considering household goods while auto supplies, pharmacy and health and beauty aids and grocery were cheaper 85% of the time.

Another thing which might be a threat for dollar stores from Wal-Mart Stores, Inc. (NYSE:WMT) would be its expansion into residential areas. As Bloomberg Industries senior analyst Poonam Goyal said, Wal-Mart is penetrating stores in neighborhoods and eroding the advantage that dollar stores used to have so Family Dollar needs to beware the retail giant’s moves.

Dollar General is also cheaper than Family Dollar as one blogger found out. But Dollar General has not been performing of late as it also saw a drop in gross margin in the first quarter reported in June because it has been selling a higher number of consumable items and tobacco, and would require a jump in discretionary spending to actually improve profit. Revenue had grown 8.5% while same store sales had increased 2.6% which are almost identical to Family Dollar.

Conclusion

Family Dollar Stores, Inc. (NYSE:FDO) is growing revenue and expanding stores but it is being hurt by competition and constrained spending on high-margin items. Investors need to watch the company from the sidelines and check for signs of improvement and buy when the signs are visible.

The article A Discount Retailer to Watch originally appeared on Fool.com and is written by Amal Singh.

Amal Singh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Amal is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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