Picking the Best Discount Store Stocks on Cash Management and Operational Performance

Retail is detail. Discount stores face a challenging marketplace where they have large fixed costs and slim margins. The industry has slowly grown more concentrated with the emergence of superstores like Wal-Mart (WMT) and a constant push towards ever-greater scale to enhance purchasing power.

The recent Great Recession has pushed more consumers towards these stores for many of their needs. Shoppers have scaled back from department stores and specialty stores to discounters. Even within the industry, other shoppers have scaled down further. Discount stores are now furthermore pressured from below by alternative options ranging from eBay (EBAY) to thrift stores and even garage sales.

Evaluating retail stocks requires significant assessment of their operational capabilities. Metrics such as inventory turnover and cash conversion cycles are key. Table 1 shows the leading publicly-traded discount stores with some basic data. The discount store industry is dominated by a few larger names to a greater extent than the grocery store industry.

Table 1: Publicly Traded Discount Stores

Ticker	Name	Price ($/share)	Enterprise Value ($ Billions)	Trailing P/E	Forward P/E	Revenues (ttm) ($ Billions)	Fiscal Year End
WMT	Wal-Mart Stores Inc.	$55.69	$ 245.2	13.8	12.6	$419.2	January
COST	Costco Wholesale Corp.	$75.04	$ 27.8	24.6	18.6	$79.9	August
TGT	Target Corp.	$54.39	$ 53.5	14.3	12.2	$66.9	January
DG	Dollar General Corporation	$27.24	$ 12.5	19.3	12.9	$12.7	January
BJ	BJ's Wholesale Club Inc.	$49.37	$ 2.3	18.9	15.2	$10.8	January
FDO	Family Dollar Stores, Inc.	$44.16	$ 5.3	16.1	11.5	$ 8.0	August
DLTR	Dollar Tree	$50.50	$ 6.1	17.5	13.4	$ 5.7	January
BIG	Big Lots, Inc.	$41.57	$ 2.5	15.0	10.4	$ 4.9	January
FRED	Fred's Inc.	$13.07	$ 0.5	19.2	14.6	$ 1.8	January
PSMT	PriceSmart Inc.	$37.68	$ 1.1	20.9	15.6	$ 1.5	August
NDN	99 Cents Only	$16.63	$ 0.9	15.7	12.7	$ 1.4	March
TUES	Tuesday Morning Corporation	$4.92	$ 0.2	17.9	9.9	$ 0.8	June