Discount retailer Dollar General (NYSE:DG) reported positive sales trends at its existing stores during 2011, marking the 22nd straight year it has been able to achieve such a feat. This consistency over more than two decades recently caught the attention of a famed billionaire investor, who likely plans to stick with the name for the long haul.
Full Year Recap
Dollar General's sales grew 13.6% to $14.8 billion. Comparable store sales improved a very healthy 6% and was attributed to both higher customer traffic and a higher average transaction amount. Additionally, the company opened 565 net new stores to bring the year end store count to 9,937, and grew its selling square footage by 7% to nearly 72 million square feet.

The sale of food, shampoo, pet supplies and other consumables continued to be the largest sales contributor at more than 73% of the total top line. It was also the fastest growing at 1.1%. The home products category was the next fastest grower and was followed by seasonal merchandise, then apparel sales, all of which grew in the single digits. Dollar General prides itself on selling "high quality national brands from leading manufacturers" that include Procter & Gamble (NYSE:PG), Kimberly-Clark (NYSE:KMB), Kellogg (NYSE:K) and Kraft Foods (NYSE:KFT).

Operating profits jumped 17% to $1.5 billion as Dollar General was able to control its SG&A operating costs and pass along higher commodity costs to its customers. Lower interest expense and higher other income helped send net income ahead by 22.1% to $766.7 million, or $2.22 per diluted share. Free cash flow improved to $535.6 million, or approximately $1.55 per diluted share. To know more about income statements, read Understanding The Income Statement.

Outlook and Valuation
For 2013, Dollar General believes that sales will rise around 10% and earnings between $2.65 and $2.75 per diluted share. This would represent solid annual profit growth in a range of 19.4 and 23.9%.

At a current share price just about $46 per share, Dollar General's forward P/E is slightly above 14.

The Bottom Line
Growth trends are really perking up at Dollar General and has been so impressive that they caught the attention of Warren Buffett's Berkshire Hathaway (NYSE:BRK.A, BRK.B). One of his younger protégés likely picked up the shares late last year, but was added to the firm's investment portfolio nonetheless. This increased attention and solid operating fundamentals have pushed the stock price and valuation to lofty levels, but will end up still being reasonable entry points should Dollar General continue growing around 20% per year. For additional reading, check out 5 Must-Have Metrics For Value Investors.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  2. Stock Analysis

    Why did Wal-Mart's Stock Take a Fall in 2015?

    Wal-Mart is the largest company in the world, with a sterling track-record of profits and dividends. So why has its stock fallen sharply in 2015?
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  6. Investing

    Retailers Rebel Against Black Friday: Bad Move?

    The Black Friday creep may have hit a wall as some stores are shutting their doors on Thanksgiving and even Black Friday to give employees the day off.
  7. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  8. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  9. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  10. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center