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Dollar General's Bull Run Fueled by Better Comps & Pricing

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Dollar General Corporation (DG - Free Report) looks quite disciplined in its approach of tackling prevailing headwinds in the retail landscape — stiff competition from online retailers and aggressive pricing strategy. Despite the ultra-competitive retail scenario, shares of this Tennessee-based company have surged 16% in the past three months, comfortably outpacing the industry’s rally of 9.3%. The company’s shares have also outperformed the Retail-Wholesale sector that grew 1.3% during the aforementioned period.

The company’s commitment toward better pricing, private label offerings, effective inventory management, and merchandise initiatives have aided it in carving out a niche in the retail space. The everyday low-price model is anticipated to continue to drive traffic despite the rising popularity of online retailers. These along with steady store openings and improvement of distribution centers should keep driving sales.

Dollar General’s impressive comparable-store sales growth story is testimony of the same. Fiscal 2018 marked the 29th consecutive year of comparable-store sales growth for the company. The trend continued in the first quarter of fiscal 2019 as well, wherein comparable-store sales increased 3.8% year over year primarily owing to rise in average transaction amount and customer traffic. Management reiterated fiscal 2019 net sales growth projection of 7% with comparable-store sales expected to increase approximately 2.5%.

 

Moreover, 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 its cooler facilities to enhance the sale of perishable items and rolling out DG digital coupon program and DG Go app. Management 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.

Clearly, in spite of a tough retail landscape, this Zacks Rank #2 (Buy) has been thriving, when many other traditional operators are finding it difficult to cope.

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