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Dollar General Hits 52-Week High: Is There More Room to Run?

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Dollar General Corporation (DG - Free Report) remains poised on better pricing, private-label offering, effective inventory management, and merchandise and operational initiatives that are expected to drive sales and margins. These along with a compelling store-growth story at convenient locations and focus on consumable products lend the company a competitive edge.

Impressively, Dollar General also jumped 11.3% in a month, outperforming the industry’s growth of 7.3%. Markedly, this Zacks Rank #3 (Hold) stock hit a new 52-week high of $110.15 on Sep 4, though it closed a tad lower at $109.82.



Growth Catalysts

Dollar General is making efforts to drive traffic by focusing on both consumables and discretionary categories. The roll out of tobacco is in sync with the company’s afore-mentioned plans. In addition, the company is expanding its cooler facilities to enhance the sale of perishable items and is rolling out DG digital coupon program and DG Go app. Sales at the consumables division continued to improve, driving comps and market share gains in second-quarter fiscal 2018. Also, both top and bottom lines improved year over year during the quarter.

Further, the company witnessed solid comparable-store sales growth. The sturdy trend was retained in the first and second quarter of fiscal 2018, wherein comps grew 2.1% and 3.7%, respectively, owing to rise in average transaction amount and customer traffic. Consumables, Seasonal and Apparel categories augmented the comparable-store sales. Management now expects comparable-store sales increase in mid-to-high two percent range during fiscal 2018. The company had earlier guided comparable-store sales increase in mid-two percent range.

Dollar General has been quite rationale when it comes to new store openings.  The company anticipates to open 900 stores, remodel 1,000 stores and relocate approximately 100 stores in fiscal 2018.

Bottom Line

Though these upsides raise optimism for the stock, the company’s gross margin looks somewhat pressurized as the metric contracted 7 basis points (bps) to 30.7% during the second quarter of fiscal 2018 owing to sales of products carrying lower margin, increased markdowns and higher transportation costs. Apart from this, the company is facing higher freight and fuel costs.

However, we expect the company’s robust strategies to offset these hurdles and help it continue with its growth trajectory.

Apart from Dollar General, companies like Burlington Stores, Inc. (BURL - Free Report) , Deckers Outdoor Corporation (DECK - Free Report) and The TJX Companies, Inc. (TJX - Free Report) also scaled 52-week highs on Sep 4.

Shares of Deckers hit a 52-week high of $124.68, closing marginally lower at $120.93. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Burlington Stores hit a 52-week high of $173.96, though it closed a tad lower at $173.86. The stock carries a Zacks Rank #2.

Shares of TJX Companies hit a 52-week high of $111.80, though it closed a tad lower at $111.44. The stock carries a Zacks Rank #2.

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