Clash Of The Dollar Store Titans: Dollar General Vs. Dollar Tree

In a new report, Citi Research analyst Alvin Concepcion pitted dollar store rivals Dollar General Corp. (NYSE: DG) and Dollar Tree, Inc. (NASDAQ: DLTR) head-to-head in a five-part comparison of different aspects of their businesses.

Analysts picked a winner in each category and then declared a champion.

1. Business Model

Despite the fact that both companies are market leaders in the space, Dollar Tree’s acquisition of Family Dollar Stores Inc (NYSE: FDO) has gained the company a slight overall market share lead and given Dollar Tree a slight advantage in terms of diversified pricing, merchandising and store location profile.

Winner: Dollar Tree

2. Same-Store Sales growth

Citi is forecasting 3.2 percent growth at Dollar General over the next three years, but only 2.2 percent growth at Dollar Tree as the company deals with the relatively weak recent performance of Family Dollar.

Winner: Dollar General

3. Margin Growth Potential

Citi believes that Dollar General will achieve about a 9.8 percent EBIT margin profile from 2015-2017 versus Dollar Tree’s overall 9.4 percent margins. However, Citi notes the strong opportunities for core margin improvements at Family Dollar as Dollar Tree works out deal synergies in coming years.

Winner: It’s a tie

Related Link: The Burger Wars: McDonald's Vs. Burger King Vs. Wendy's

4. New Store Unit Growth

Citi’s saturation analysis indicates that both Dollar General and Dollar Tree have the opportunity for nearly 50 percent unit growth. Citi sees the potential for 5,700 new Dollar General stores and 6,400 new Dollar Tree stores.

Winner: It’s a tie

5. Valuation

Dollar General’s forward P/E ratio of only 19.6x compares favorably to Dollar Tree’s forward P/E of 23.5x, and Citi sees a more “compelling upside opportunity” for Dollar General.

Winner: Dollar General

A Champion Declared

Overall, Dollar General comes out ahead in the dollar store head-to-head competition, and Citi believes that investors should be buying the company’s stock at current price levels. Citi has a Buy rating on Dollar General and a Neutral rating on Dollar Tree.

Image Credit: Public Domain