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Can Dollar General Replicate This Year's Decent Show in 2020?

Zacks Equity Research

Dollar General Corporation DG looks well poised to maintain this year's vigor going into the New Year, courtesy of sound fundamentals and growth efforts. We note that shares of this Tennessee-based company have advanced 49.9% in a year compared with the industry’s growth of 47.6%. This Zacks Rank #3 (Hold) stock has also comfortably outperformed the Retail-Wholesale sector and the S&P 500 Index that rallied 21% and 23.7%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strategic Endeavors to Drive Momentum

Dollar General’s better pricing, private label offerings, effective inventory management, and merchandise initiatives have been aiding the company in carving out a niche in the retail space. The company is committed toward ramping up investments in the wake of rising competition from the likes of Dollar Tree DLTR, Costco COST and Ross Stores ROST.

The company’s everyday low-price model is anticipated to drive traffic persistently despite the rising popularity of online retailers. We believe that store expansion initiatives and continued restructuring, as evident from steady store openings and the improvement of distribution centers, should keep driving higher revenues.

The company’s impressive same-store sales growth story is testament to the same. The metric improved 4.6% in third-quarter fiscal 2019, following an increase of 4% and 3.8% in the preceding two quarters. Consumables, Seasonal, Apparel and Home categories favorably impacted the same. Management now expects fiscal 2019 net sales growth in the low 8% range with same-store sales expected to increase in the mid-to-high 3% range.

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 consolidating DG GO app into primary Dollar General app. Management’s 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 bode well.

The company has adopted a disciplined approach to store openings, expansion and refurbishment. It plans to open about 975 new stores, remodel 1,000 stores and relocate 100 stores in fiscal 2019. Of the planned remodels, the company plans to convert approximately 500 stores in the Dollar General traditional plus or DGTP format. In fiscal 2020, the company intends to open 1,000 new stores, remodel 1,500 stores (including 1,100 DGTP remodels), and relocate 80 stores.

Wrapping Up

Clearly, you can see from above that there are plenty of reasons to be optimistic about the stock going into 2020. Moreover, the Zacks Consensus Estimate for fiscal 2020 top and bottom line indicates year-over-year improvement of 7.5% and 11.5%, respectively.

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Costco Wholesale Corporation (COST) : Free Stock Analysis Report
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