Question:
I’m looking at Dollar Tree and Family Dollar. They look about the same. Do you have a preference for one over the other?
Answer:
Family Dollar Stores, Inc. (NYSE: FDO) operates more than 7,000 general merchandise, discount stores across about 45 states, selling merchandise in the consumables, home products, apparel, accessories, seasonal goods, and even electronics categories.
In the most recent quarter, Family Dollar’s earnings growth slowed quite a bit to just 5% from the previous year, slightly short of expectations. In 2012, the company’s profit grew 16%, and in 2011, it was 19%. Same store sales growth momentum also slowed considerably, rising only 2.9% compared with an advance of 6.6% last year. This was short of the company’s own forecast for 4%-5% growth.
Family Dollar has made a few missteps, including stocking shelves with lower-margin consumable products, such as, soft drinks and cigarettes, offering heavier discounts amid tough competition.
Dollar Tree, Inc. (NASDAQ: DLTR), on the other hand, has about 4,500 stores throughout the United States and about 100 stores in Canada. The store stocks similar merchandise, including food, house wares, toys, stationary, seasonal items, etc.
In the company’s most recent quarter, it reported same store sales growth of 2.4% over last year, which is obviously important because it means the company has been able to grow sales, without the need to open new stores. That said, the company still plans to open new stores and increase total square footage by about 7% in 2013.
To encourage customers to spend more per visit, in about three-quarters of its stores, Dollar Tree has recently expanded its payment-type acceptance to include credit cards, pin-based debit cards, including Electronic Benefit Transfer cards, and food stamps. Additionally, Dollar Tree will continue adding coolers and freezers to its stores to diversify it food offerings. This should also help drive customer ticket growth. Currently, about 55% of stores have refrigerated sections, and by next year, about 65% should have them.
Both companies should benefit from increased customer traffic, as more people trade down to these discount stores as a result of continued pressure from a tough economic environment that still has high unemployment, low wage growth and higher gas prices.
All-in-all, we like what Dollar Tree is doing a little more than Family Dollar.
Question:
Where do you stand on Intel these days? I’ve heard you pound the table on Apple and Microsoft for a while now. Don’t they both need Intel processors?
Answer:
We still like Intel Corporation (NASDAQ: INTC), and currently hold it in our Equity-Income Portfolio for its 4% dividend yield, which they’ve increase 10 straight years. In fact, the dividend has grown 25% per year in the last decade.
Intel owns about 80% of the microprocessor market, but Intel’s large size is both helpful and harmful. On the positive side, it provides economies of scale in production and helps in product development. On the other hand, it is the law of large numbers in that it is difficult to really move the needle. Revenue growth may further be hindered by the fact that world demand for personal computers remains sluggish. Just this week, International Data Corporation reported PC shipments fell 14% over last year.
While both Microsoft and Apple have Intel chips in their desktops and notebooks, and Microsoft’s Surface tablet has them, these products have seen limited demand, particularly with the proliferation of smartphone and tablet growth and usage. Intel has not been particularly strong in the tablet smartphone markets because Intel chips perform better in devices connected to a power source, i.e., plugged into the wall. Tablets and smartphones are powered by batteries.
Again, we like Intel, but Qualcomm, Inc. (NASDAQ: QCOM) is another way to play the chipmakers. If you’re looking for exposure to the smartphone market, Qualcomm, another one of our holdings, is a solid choice because its chips are in about 75% of all smartphones. As a result of its strong patent portfolios, Qualcomm receives royalties on 3Q, 4G, and CDMA based phones.
At Henssler Financial we believe you should Live Ready. If you are comparing stocks, the experts at Henssler Financial will be glad to provide some insight. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
