Back to top

Image: Bigstock

Dollar General (DG) Rides on Business Model & Pricing Power

Read MoreHide Full Article

Dollar General Corporation (DG - Free Report) remains a compelling growth story in the retail space. Thanks to its value-creating initiatives, defensive product mix and real estate growth strategy, the company has the capability to gain market share. Its commitment to better pricing, private label offerings, effective inventory management and merchandise initiative should drive sales. The company’s everyday low-price model is attracting customers who have been seeking both value and convenience amid soaring inflation.

Customer-Oriented Efforts

Dollar General’s initiatives such as DG Fresh, Fast Track, non-consumables, digitization and private fleet should benefit the top line. The company has been sparing no effort to bolster omni-channel operations and ramp up delivery services to provide customers with a frictionless shopping experience. Its partnership with DoorDash continues to yield results with same-day delivery, now available at 11,000 stores at the end of first-quarter fiscal 2022.

Talking about the company’s transformational initiatives, DG Fresh is designed to enable self-distribution of fresh and frozen products, while Fast Track aims at increasing labor productivity in stores, enhancing customer convenience and improving on-shelf availability.

Under DG Fresh, the company has been expanding its cooler facilities to enhance the sale of perishable items. During the first quarter, the company installed more than 17,000 cooler doors across its store base and plans to install more than 65,000 cooler doors in fiscal 2022. The company completed the initial rollout of DG Fresh across the entire chain and is now delivering to more than 18,000 stores from 12 facilities.

With respect to Fast Track, the company has been expanding its self-checkout facility, which was available in more than 8,000 stores at the end of the first quarter. The company plans to expand this offering to a total of up to 11,000 stores by the end of the current fiscal year. Additionally, the non-consumable initiative offering was available in over 13,000 stores. The company plans to complete the rollout of the non-consumable initiative offering across the entire chain by the end of fiscal 2022.

 

Zacks Investment Research
Image Source: Zacks Investment Research

Store Growth Plans

Dollar General has been making prudent investments relating to store infrastructure, store openings, expansions, remodels and relocations to drive revenues. The company opened 239 new stores, remodeled 532 stores, and relocated 32 stores in the first quarter.

The company anticipates carrying out 2,980 real estate projects, including 1,110 store openings, 1,750 remodels and 120 store relocations in fiscal 2022. This includes a plan to open up to 10 stores in Mexico by the end of fiscal 2022.

In the first quarter, the company opened 11 new pOpshelf locations, which took the total count to 66. Additionally, at the end of the quarter, the company had a total of 25 store-within-a-store concept, a smaller pOpshelf store in Dollar General’s larger format stores. Management reaffirmed its plan to nearly triple the pOpshelf store count and open up an additional 25 store-within-a-store concepts, which would result in more than 150 stand-alone pOpshelf locations and a total of approximately 50 store-within-a-store concepts by the end of fiscal 2022. The company is targeting approximately 1,000 pOpshelf stores by the end of fiscal 2025.

Wrapping Up

Dollar General’s differentiated product range resonates well with customers’ spending habits. The company is making every effort to enhance guests’ experience via unique store concepts, affordable and convenient assortment, and other innovations.

Management anticipates net sales growth of about 10-10.5% — including an estimated benefit of approximately two percentage points from the 53rd week — for fiscal 2022. The company foresees same-store sales growth of approximately 3-3.5%. It envisions earnings per share growth to be 12-14%, including an estimated benefit of approximately four percentage points from the 53rd week.

Markedly, shares of this Zacks Rank #3 (Hold) company have climbed 8.9% in the past three months against the industry’s decline of 15.5%.

3 Looking Red Hot

We have highlighted three better-ranked stocks, namely Dollar Tree (DLTR - Free Report) , Sysco Corporation (SYY - Free Report) and Kroger (KR - Free Report) .

Dollar Tree, which operates discount variety retail stores, flaunts a Zacks Rank #1 (Strong Buy) at present. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Dollar Tree’s current financial-year sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the year-ago reported numbers. DLTR has an expected EPS growth rate of 15.5% for three-five years.

Sysco Corporation, which is engaged in the marketing and distribution of various food and related products, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Sysco Corporation’s current financial year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago period. SYY has an expected EPS growth rate of 11% for three-five years.

Kroger, the renowned grocery retailer, carries a Zacks Rank #2 (Buy) at present. The company has an expected EPS growth rate of 11.4% for three-five years.

The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 6.7% and 5.7%, respectively, from the year-ago reported numbers. KR has a trailing four-quarter earnings surprise of 20.3%, on average.