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Dollar stores offer continued competition

Target faces increased competition from dollar stores, as their value proposition still resonates with cash-strapped consumers. Dollar General, for example reported that net income for its third quarter was $171 million, 50 cents per diluted share, compared with net income of $128 million, or diluted EPS of 37 cents, in the third of fiscal 2010. The company reported that same-store sales increased 6.3% for the quarter. 

According to the company, the same-store sales growth was due to increases in customer traffic and average transaction amount. Sales for the third quarter increased 11.5% to $3.6 billion in the 2011 third quarter compared with $3.22 billion in the 2010 third quarter. Consumables sales continued to increase at a higher rate than non-consumables in the 2011 quarter, with the most significant growth in candy and snacks, perishables, packaged foods, health care and pet supplies, the company said. Sales were down in apparel due to continued weakness in discretionary spending by consumers, Dollar General said.

“Dollar General delivered another great quarter, and we expect to continue to build upon our strong track record of delivering excellent results for our shareholders,” said Rick Dreiling, chairman and CEO.

“For the holiday season and into 2012, we expect our customers to remain very interested in value and in ways to make their dollars go further. November sales were strong. Our Thanksgiving week and Black Friday sales suggest that we are well positioned to meet our customers’ expectations," Dreiling said.

Dollar General is raising its outlook for the fiscal year ending Feb. 3, 2012 and now expects to report adjusted diluted earnings per share in the range of $2.29 to $2.32. The company said it now expects full-year sales to increase by approximately 13% Same-store sales are now expected to increase in a range of approximately 5.6% to 5.8%. Same-store sales in the 2011 fourth quarter are expected to increase approximately 5%.

Dollar General's confidence is echoed by the investor community. Deutsche Bank Securities is recommending Dollar General as a stock to buy on the company's growing traffic thanks to its commitment to low prices.

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