Dollar General's Better Pricing & Decent Comps To Fuel Sales

Dollar General Corporation’s (NYSE:DG) 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’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 revenues.

Let’s Introspect

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. The company has DG GO! checkout in more than 700 outlets.

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.

As part of its non-consumable initiative, the company is now focusing on categories of home, domestics, housewares, party and occasion. The non-consumable initiative offering was available across more than 2,100 stores at the end of the third quarter. The company intends to include it in approximately 2,400 outlets by the end of fiscal 2019 and in 2,600 more stores in fiscal 2020.

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, in spite of a tough retail landscape, the company has been thriving, when many other traditional operators are finding it difficult to cope. Notably, shares of this Zacks Rank #2 (Buy) company have surged 36.2% in a year outperforming the Zacks Retail-Wholesale sector’s rally of 19.5%.

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