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Dollar General's (DG) Initiatives Bode Well: Hold the Stock

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With increased commitment toward better price management, merchandise, cost containment and operational initiatives, Dollar General Corporation (DG - Free Report) remains confident of sustaining its growth momentum. Moreover, the stock has witnessed a nearly 33.8% hike over the past six months.

We believe that the aforesaid endeavors undertaken by the company will drive sales and margin trends. In order to boost traffic, Dollar General is focusing on both the consumables and discretionary categories. These strategies helped the company to post the fifth straight quarter of positive earnings surprise, when it reported first-quarter fiscal 2016 results.

Dollar General has been actively managing its cash flows, returning much of its free cash to shareholders through share repurchases and dividend payouts. Further, the company has been accelerating its pace of new store openings. In fiscal 2016, it plans to open about 900 new stores and relocate or remodel around 875 stores. Also, the company has been making prudent investments related to store infrastructure, store openings, expansions and relocations, along with the improvement of distribution centers to drive revenues.

Apart from this, the retailer is expanding its cooler facilities to enhance the sale of perishable items and rolling out the DG digital coupon program. Notably, the rollout of tobacco has been a key factor in driving traffic.

However, Dollar General posted lower-than-expected sales in the last 11 straight quarters. Also, stiff competition and cautious consumer spending may weigh upon the company's performance.

DOLLAR GENERAL Price and Consensus

DOLLAR GENERAL Price and Consensus | DOLLAR GENERAL Quote

Nevertheless, Dollar General’s model incorporates annualized growth targets of 10–15% for earnings per share and 7–10% for net sales, including square footage growth of 6–8% and comparable-store sales growth of 2–4%. Moreover, the Zacks Consensus Estimate of $4.64 and $5.17 for fiscal 2016 and fiscal 2017, has increased 7 cents and 1 cent, over the past 90 days, respectively.

Given the pros and cons embedded in the stock, Dollar General currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Some better-ranked stocks in the same industry include Burlington Stores, Inc. (BURL - Free Report) , sporting a Zacks Rank #1 (Strong Buy), Tuesday Morning Corporation and Dollar Tree Inc. (DLTR - Free Report) , both carrying a Zacks Rank #2 (Buy).

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