Dollar General Gains on Upgrade

In December, the company sees same-store sales rising 2% to 4%, with total sales up 10% to 12%. The Goodlettsville, Tenn.-based company operates more than 6,700 stores. The company had said in mid-November that it plans to open 675 stores in the fiscal year beginning Jan. 31, 2004.

The upgrade of Dollar General is interesting in light of analysts' concerns over lagging sales in the "dollar" space. SunTrust analyst Patrick McKeever recently noted that the low-income consumer might not be spending as much with the holidays still weeks away. He believes spending might pick up as the holidays draw closer because people will be shopping "close to need."

In addition, Citigroup Smith Barney analyst Deborah Weinswig noted in a recent research report "the low-end consumer remains pressured by a tough job market and has faced liquidity issues, as evidenced by the pronounced paycheck cycle."

At another dollar discounter, Family Dollar Stores(FDO Quote), McKeever expects to see the same trend of customers buying closer to the holidays. Family Dollar reported that November same-store sales were up 0.7%, below McKeever's projection for a 4% to 6% rise. Total sales rose 10%.

McKeever noted that the pipeline will remain challenging for the dollar discounters as other discounters, such as Wal-Mart(WMT Quote) and Costco(COST Quote) use promotions such as "early bird specials" to get customers in the door, which could continue through January.

Still upbeat on the dollar sector, Miller also recommended that investors buy shares of Family Dollar as well as Fred's(FRED Quote).