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Dollar General shares rise on optimism about 4Q

NEW YORK (AP) -- Shares of Dollar General Corp. rose Wednesday on investor optimism that the company will post strong fourth-quarter results.

THE SPARK: Nomura analyst Aram Rubinson said that for the quarter ended Feb. 1, he expects earnings of 91 cents per share, a penny higher than the average estimate of analysts surveyed by FactSet.

The dollar store operator also projected a 3.5 percent increase in revenue at stores open at least a year. The metric is a key measure of a retailer's health, because it excludes sales at stores that recently opened or closed.

THE BIG PICTURE: Dollar stores, which typically offer a wide variety of items, continue to attract price-conscious shoppers amid continued tough economic conditions. And they've been stepping up their offerings, with companies like Dollar General adding more grocery items, along with beer, wine and tobacco.

Because they're smaller than big-box retailers and supermarkets, they're also often seen as quick, convenient places to pick up everyday necessities.

Goodlettsville, Tenn.-based Dollar General said in January that it planned to open 635 new stores this year, bringing its total to over 11,000. The company is scheduled to release its fourth-quarter results on Monday.

THE ANALYSIS: Rubinson said he doesn't think the company should have a problem posting a 3.5 percent increase in revenue at stores open at least a year if sales of consumables, such as groceries, continue on their previous growth path.

The analyst noted that Dollar General's sales of consumables have increased between 12 percent and 14 percent over the past two years and rose 12.5 percent in the third quarter of this past year.

"Considering Dollar General is pushing harder into beer, wine and now tobacco, we wouldn't be surprised to see the channel improve from its 12 percent to 14 percent pattern over time," Rubinson wrote in a note to investors. "Either way, we think our estimates are not overly demanding."

THE SHARES: Up $1.64, or 3.4 percent, to $49.41 in afternoon trading, after peaking at $49.92 earlier in the day. Over the past 52 weeks, the company's shares have traded between $39.73 and $56.04.

Since the beginning of this year, Dollar General shares have risen about 8 percent.