There's an insatiable demand for value in America. If you offer something cheaper than anyone else, you are going to be met with a level of outright eagerness that will shock you.
We've seen it in restaurants where McDonald's (MCD) has taken the country by storm with lower prices and an all-day breakfast that's considered a terrific bargain, one that Jack-in-the-Box (JACK) has complained about vocally as a price disrupter that has hurt its stock. I think the stock of McDonald's, even up here, makes sense to buy, even if it is just a partial amount as you wait for lower prices.
We've seen it in retail where the two companies with standout performance, Ross Stores (ROST) and TJX (TJX), very specifically offer lower-price, brand-name goods that they can buy from department stores frantic to dump inventory. These two companies are direct beneficiaries of the woes we have seen at countless full-price retailers and you are the winner when it comes to buying the same quality merchandise you would see at a department store at a much lower price. The stocks of both Ross and TJX have run after they reported excellent quarters and I hate chasing. I would again, however, initiate positions in either one because of their growth prospects and the lame nature of so many of the larger department stores they buy from.
Today we are seeing the zest for value in the dollar stores, specifically Dollar General (DG), which put up much better-than-expected same-store sales, revenues and gross margins while at the same time boosting its dividend from 22 cents to 25 cents a share and announcing an aggressive expansion plan while expanding an already generous buyback. It's no wonder the stock's up six bucks or 8% to an all-time high. The company's delivering exactly what the customer wants, brand names for less.
It was about as good a quarter as a company can offer and the commentary was even better, with management talking about how its real estate people are, indeed, able to find enough locations to meet the demand for more dollar stores from the public nationwide. In fact, the biggest concern I heard on this rosy, congratulatory call was Dollar General's ability to put up stores fast enough to meet the needs of the clamoring masses. It intends to open an extraordinary 900 stores on top of the 11,500 it already has. That's quite a difference from the typical national retailer, which has already saturated the U.S. with stores.
How many companies can claim the high-quality problem of putting up enough stores to please customers?
I know it seems strange with the job growth we have and the low interest rates that should be stimulating so much purchasing power, but the average shopper at Dollar General just isn't feeling it. Listen to this little gem spoken by CEO Todd Vasos on the conference call: "The key for our value offering that we have is really what it does, it gives the consumer trial. You have to remember our core consumer can ill afford to make a mistake. So she can't afford to take a flier, if you will, to go out and buy something on a national brand basis that may be a larger size without having tried it." But, Vasos continued, "If we can offer her a national brand offering as an example at a very small size that she can afford, say at $1, it gives her a trial. And once she has the trial, what we've seen is it becomes then -- it migrates into acceptance and she moves from that $1 offering and actually trades up to larger sizes."
There, isn't that the value moment in a nutshell, a consumer who can ill afford a nationally branded item unless she first trials it once? I think that's the reality of both the customer and the country, we just don't hear about it much if we are well off. Given that most Wall Streeters don't have to trial any brand for a buck first before buying, no wonder the company's earnings took the analysts and money managers by surprise. I say, once again, be on the lookout for value in stores. It will almost always translate into value in a stock, one worth sampling for your portfolio if not buying in bulk.