In spite of a tough retail landscape, Dollar General Corporation DG has been thriving, when several traditional operators are finding it difficult to cope. The company is committed toward ramping up investments in the wake of rising competition. The company’s everyday low-price model is anticipated to drive traffic persistently despite the rising popularity of online retailers. Store expansion initiatives, continued restructuring and improvement of distribution centers should keep driving higher revenues.
The company’s impressive comparable-store sales growth story is testament to the same. Fiscal 2018 marked the 29th consecutive year of comparable-store sales growth for the company. The trend continued in the first quarter of fiscal 2019 as well, wherein comparable-store sales increased 3.8% year over year primarily due to rise in average transaction amount and customer traffic.
In order to increase traffic, Dollar General is focusing on both consumables and non-consumables categories. The company is also offering better-for-you products at affordable prices. Additionally, the company is expanding cooler facilities to enhance the sale of perishable items and rolling out DG digital coupon program and DG Go app. Management introduced two transformational strategic initiatives — DG Fresh, designed to enable self-distribution of fresh and frozen products, and Fast Track, an in-store labor productivity and customer convenience initiative.
Buoyed by above-mentioned reasons, shares of this Tennessee-based company have surged 29.1% so far this year, comfortably outpacing the Retail & Wholesale Sector as well as S&P 500 Index, which rallied 19.1% and 17.1%, respectively. Currently, this Zacks Rank #2 (Buy) stock is trading close to its 52-week high of $140.12, and there are valid reasons to believe that Dollar General with long-term earnings growth rate of 10.9% could scale new highs.
Why the Retail Sector?
Well like Dollar General there are other prominent retailers that are riding on the wave of favorable consumer environment and strategic endeavors. The retailers are making prudent investments, focusing on cost savings, enhancing omni-channel capacities, introducing new brands, refurbishing stores and expanding same-day delivery options.
It goes without saying that the sector’s prospects are closely tied to the purchasing power of consumers. In fact, strengthening labor market and rising disposable income are forming a perfect base for higher consumer spending. Notably, the U.S. economy added 224,000 jobs compared with a mere 72,000 in May (revised data) and the consensus estimate of 161,000.
Moreover, per the Commerce Department consumer spending rose 0.4% in May supported by 0.5% increase in personal income. April’s revised data also exhibited an increase of 0.6% in consumer spending. Further, any cut in the benchmark interest rate at this juncture will ramp up investment activities and reinforce consumer spending.
4 Prominent Picks
We have shortlisted stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Also, the stocks have outperformed the sector.
We suggest investing in Aaron's, Inc. AAN, which has a long-term earnings growth rate of 15% and VGM Score of A. This omnichannel provider of lease-purchase solutions has an average positive earnings surprise of 4.4% in the trailing four quarters. Shares of this Zacks Rank #1 company have increased approximately 48.6% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Another stock worth considering is Costco Wholesale Corporation COST with a long-term earnings growth rate of 8.9% and a VGM Score of B. The operator of membership warehouses has an average positive earnings surprise of 6% in the trailing four quarters. Shares of this Zacks Rank #2 company have surged roughly 32.6% so far this year.
Investors can also count on Lithia Motors, Inc. LAD, which operates as an automotive retailer. This Zacks Rank #2 company has a long-term earnings growth rate of 7.1% and a VGM Score of A. The company has an average positive earnings surprise of 3.5% in the trailing four quarters. The stock has advanced about 56.2% so far in the year.
Best Buy Co., Inc. BBY, a retailer of technology products, services, and solutions is a solid bet. It has a Zacks Rank #2 and a VGM Score of B. The company with a long-term earnings growth rate of 8.8% has an average positive earnings surprise of 10.2% in the trailing four quarters. The stock has risen roughly 35.7% year to date.
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Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
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