Dollar General a Rare Bright Spot in Retail

(MoneyWatch)  The current retail landscape might be littered with store closings and poor sales, but occasionally the industry is graced with some hopeful news. Lately a lot of that is coming from the deep-discount sector, and Dollar General's announced IPO will likely be another success story in that arena.

The Goodlettsville, Tenn.-based retailer's parent, private-equity firm Kohlberg Kravis Roberts & Co., is looking to raise $750 million from the measure. The outfit's timing for this listing is perfect.

During its most recently reported financial quarter, announced June 2, Dollar General posted a same-store sales gain of 13.3 percent, while net income came in at $83 million, up from $5.9 million during the same year-ago period. Earlier this year the company revealed that it's one of the few retailers out there aggressively expanding, with plans to open 450 stores on top of its current army of 8,500 locations.

Dollar General isn't alone in its good fortune during a time when shoppers are looking for bargains. Competitor Family Dollar Stores saw its net income rise 35.5 percent, to $87.7 million during its third quarter. Earlier this month Dollar Tree reported a second-quarter same-store sales gain of 6.8 percent, while net sales grew 11.9 percent, hitting $1.22 billion.

Some observers are concerned about Dollar General's $4.1 billion in debt, mostly amassed when KKR purchased the retailer for $7.2 billion in 2007. But according to a Reuters article, investment firm Renaissance Capital values Dollar General at between $8 billion and $10 billion and says the retailer's niche is a good bet in this economy. "It's a strong cash generator that can perhaps justify such a debt burden," said analyst Matt Therian.

Most importantly, though, is the possibility that the discounter's offering, expected to take place in the fall, could raise investor interest in an industry in need of a boost. And if Dollar General proves successful, private-equity entities might take public two more large retail players, Toys "R" Us and Dunkin' Donuts.