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Dollar General's Sturdy Comps & Better Pricing to Fuel Sales

Zacks Equity Research

Dollar General Corporation DG 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, respectively, should keep driving higher revenues.

Let’s Introspect

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. Management reiterated fiscal 2019 net sales growth projection of 7% with comparable-store sales expected to increase approximately 2.5%.

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.

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 format. During the first quarter, the company opened 240 new outlets, remodeled 330 stores (including 128 DGTP remodels) and relocated 27 stores.

Wrapping Up

Clearly, in spite of a tough retail landscape, the company has been thriving, when many other traditional operators are finding it difficult to cope. Despite the ultra-competitive retail scenario, shares of this Tennessee-based company have surged 15.2% in the past three months, comfortably outpacing the industry’s rally of 7.3%. The company’s shares have also outperformed the Retail-Wholesale sector’s growth of 2.8% during the aforementioned period.

Better pricing, private label offerings, effective inventory management, and merchandise initiatives have aided this Zacks Rank #2 (Buy) company in carving out a niche in the retail space. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Dollar General Corporation (DG) : Free Stock Analysis Report
 
Ross Stores, Inc. (ROST) : Free Stock Analysis Report
 
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
 
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
 
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