Last week in my article, 3 Large Caps Priced at a Bargain, fellow SA contributor, Ted Waller asked a great question:
Why is [DG] down so much more than DLTR? It looks like a better company all around.
In this article, I attempt to answer the question. My hope is that this will generate a vibrant discussion for a clearer answer.
Both Dollar General Corp. (DG) and Dollar Tree, Inc. (DLTR) released their Q2 reports on August 25. The results caused Dollar General to drop 17.6% and Dollar Tree to fall to a smaller extent of 10% from the previous day's close.
The downward action has been persisting.
Source: Google Finance - August 24 - October 14
However, we can see below that since August 26, Dollar General's price action has more or less aligned with that of Dollar Tree's.
So, the above evidence seems to indicate that the Q2 results had a bigger impact on Dollar General than they did on Dollar Tree.
What were the Q2 results?
Both discount retailers missed earnings by a penny. Based on this metric alone, the miss should have had a larger impact on Dollar Tree because its Q2 diluted EPS increased to $0.72 versus Dollar General's growth to $1.08.
However, Dollar Tree wins in at least two metrics. Its same-store sales growth was 1.1% (after adjusting for the impact of Canadian currency fluctuations), which was 40 basis points higher than Dollar General's 0.7%. Additionally, its net sales grew 65.9%, trumping Dollar General's increase of 5.8%.
But much of Dollar Tree's $1.99 billion net sales increase was due to its acquisition of Family Dollar in July 2015. Specifically, 90.5% of the growth was due to Family Dollar; the rest was because of sales from new Dollar Tree stores and same-store sales growth.
Even
