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Dollar General's (DG) Strategy, Better Pricing to Draw Traffic

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Better pricing, private label offerings, effective inventory management, and merchandise initiatives have helped Dollar General Corporation (DG - Free Report) in carving out a niche in the retail space. The company’s everyday low-price model is anticipated to draw customers, who have been seeking both value and convenience amid the pandemic. We believe that store expansion initiatives, continued restructuring and the improvement of distribution centers should help lift revenues.

In the current scenario, people have been shopping at discount stores for essentials and other discretionary purchases. Quite obviously, Dollar General has emerged as viable option for them. Its differentiated product range resonates well with customers’ spending habits.

Strategic Endeavors to Support Growth

In order to drive traffic, this Goodlettsville, TN-based company has been focusing on both consumables and non-consumables categories. The company has also been offering better-for-you products at affordable prices. To engage further with customers, the company introduced a new retail store concept “popshelf.” Additionally, it has been expanding cooler facilities to enhance the sale of perishable items.

During the first quarter of fiscal 2021, the company installed about 18,000 cooler doors across its store base, and plans to install roughly 65,000 cooler doors in fiscal 2021. Notably, the company has been expanding DG GO! mobile checkout, and was available in more than 3,400 stores at the end of the first quarter. Moreover, the company’s DG Pickup initiative, which is buy online and pickup in store, is available across entire stores.

Management had earlier 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. By the end of the first quarter, the company was self-distributing to more than 17,000 stores from 10 facilities. Additionally, the non-consumable initiative offering was available in more than 7,300 stores at the end of the first quarter. The company plans to expand the offering to a total of more than 11,000 stores by year end.

Again, Dollar General has been making prudent investments relating to store infrastructure, store openings, expansions, remodels and relocations to drive revenues. Management incurred capital expenditures of $278 million during the first quarter, and plans to spend $1.05-$1.15 billion in fiscal 2021. During the quarter, the company opened 260 new stores, remodeled 543 stores and relocated 33 stores. For fiscal 2021, the company remains on track to carry out 2,900 real estate projects. This includes 1,050 new store openings, 1,750 remodels and 100 relocations.

 

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Wrapping Up

It is quite apparent that Dollar General’s initiatives such as DG Fresh, DG Go and “popshelf” coupled with real estate growth strategy position it well to gain market share by targeting low-to-middle income group consumers. However, industry experts believe that tough year-over-year comparisons in consumables category with the lapping of COVID-19 benefits and inflationary pressure are headwinds that the company needs to counter.

Stock Performance

We note that shares of Dollar General have advanced 8.5% in the past three months compared with the industry’s rally of 11.1%. In a month, the stock has gained 2.6% against the industry’s decline of 0.4%.

Markedly, shares of this Zacks Rank #2 (Buy) company also got a boost following stronger-than-anticipated first-quarter fiscal 2021 results. Management informed that the most recent round of government stimulus payment did have a favorable impact on the company’s performance. It registered net sales growth of 16% in combined non-consumable categories, witnessed gross margin expansion and recorded double-digit growth in earnings per share. Better-than-expected results prompted management to lift fiscal 2021 view.

The company now anticipates earnings between $9.50 and $10.20 per share. This reflects a compound annual growth rate of about 20-24% (or approximately 19-23% compared to fiscal 2019 adjusted earnings) over a two-year period. The company had earlier guided earnings between $8.80 and $9.50 per share.

3 More Stocks to Consider

Target (TGT - Free Report) has a long-term earnings growth rate of 13.3%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores (BURL - Free Report) has a trailing four-quarter earnings surprise of 74.7%, on average. The stock sports a Zacks Rank #1.

Costco (COST - Free Report) has a long-term earnings growth rate of 9.1%. It presently carries a Zacks Rank #2.

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