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Dollar General Hits 52-Week High: Is There More Room Ahead?

Zacks Equity Research

Better price management, solid merchandising initiatives and impressive cost-containment efforts have helped Dollar General Corporation DG to stay afloat amid a rapidly changing retail environment. Moreover, in order to increase traffic, management is focusing on both consumables and discretionary categories.

Impressively, Dollar General’s shares have touched a 52-week high of $99.69 on Jan 12, though it closed a tad lower at $99.10. Overall, the stock has surged 35.6% in a year’s time, outpacing of the industry’s growth of 18.5%. Further, VGM Score of B and a long-term earnings growth rate of 11.3% highlight the stock’s inherent potential.


Meanwhile, the company’s commitment toward private label offering, effective inventory management and encouraging merchandise as well as operational initiatives, remain noteworthy. Also, Dollar General is expanding its cooler facilities to enhance the sale of perishable items and is also rolling out DG digital coupon program.

Notably, Dollar General has expanded in a more traditional brick-and-mortar fashion. The company’s buyout of 285 Acquired Stores is likely to favorably impact fiscal 2017 results. Including this buyout, management anticipates net sales to rise by 7%. The company is accelerating the pace of new store openings as well. It intends to open 900 stores, remodel 1,000 stores location and relocate approximately 100 stores in fiscal 2018. It is now focusing on smaller format stores as these require less capital expenditure and will help to cope with space constraint. Response from the company's DG 16 store format remains encouraging.

Despite these strategic endeavors bearing fruitful results, investors remain concerned over cut in SNAP benefit that might have a detrimental effect. Also, cut in SNAP benefit may hamper performance as people with low income will have less money to spend and could restrict spending to low margin products.

Given the pros and cons embedded, the stock carries a Zacks Rank #3 (Hold).

Looking for Solid Retail Picks, Check These

Some better-ranked stocks in the broader Retail sector include Zumiez Inc. ZUMZ, American Eagle Outfitters, Inc. AEO and Ross Stores, Inc. ROST.

Zumiez with a long-term earnings growth rate of 18% has pulled off an average positive earnings surprise of 22.2% in the last four quarters. Also, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, a Zacks Rank #1 stock, has a long-term earnings growth rate of 7.5%. The company has delivered an average earnings beat of 2.6% in the past four quarters.

Ross Stores carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 10%. Also, the company’s earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters by an average of 5.5%.

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