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Dollar General Rallies New Troops - Research Report On Dollar General Corp.

Stocks in this article: DG

NEW YORK, January 24, 2013 /PRNewswire/ --

The recently concluded fiscal cliff deal will present challenges to certain retail establishments including dollar stores like Dollar General Corp. (NYSE:DG) [ Full Research Report] [ 1 ] due to the imposed tax hikes for the rich and middle class. The deal says Americans will be paying two percent more in payroll taxes.

Morgan Stanley says the drag from higher taxes will extend outside discount retailers, particularly to department stores and specialty-retail stocks. A Bloomberg BusinessWeek report says an average Dollar General customer earning $40,000 annually will be required to pay out $800 in additional taxes, or $15 a week.

"Dollar stores" were seen to prosper during the recent economic downturn, even getting to steal away some Wal-Mart customers at one point. Increasing customers led them to add mid- to high-margin items later on resulting in increased sales at an average of 5.5 percent in a span of 13 months.

However, customers preferred the lower margin merchandise. Dollar General was forced to place discounts, resulting in a 0.8 percent decrease earlier this month to $43.

Nevertheless, the company is still posting profit at $208 million in net income and sales of $3.96 billion in the third quarter of 2012. Investment Contrarians still regard the firm's stock as a "buy," saying Dollar General has "reasonable valuation" and "above average long-term price appreciation potential."

The forecast for the final quarter of the fiscal year, is expected to be "flattish" and will continue to roll out low-margin items over higher-end items to "weigh on profit" in 2013, according to Bloomberg. Store sales meanwhile are expected to be comparable, with increases by 3 to 4 percent.

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