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Dollar General (DG) Displays Solid Run, Adds 35% in 3 Months

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Dollar General Corporation (DG - Free Report) has emerged as an investor favorite amid the current market volatility, thanks to the renewed tension between the United States and China, the fear stemming from the rise in number of coronavirus cases as the economy reopens and the alarming job scenario. Nonetheless, this Tennessee-based company looks quite resilient owing to its business model and products it offers, which have been in demand amid the pandemic.

We note that shares of this discount retailer have rallied 35.2% in the past three months compared with the industry’s growth of 20.2%. This Zacks Rank #2 (Buy) stock has also comfortably outperformed the S&P 500 Index that rose 27.2% in the same period. Further, the stock is trading close to its 52-week high of $194.84. In all likelihood, Dollar General with a long-term earnings growth rate of 12.4% and Growth Score of A can attain new highs. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock also got a boost following the company’s better-than-expected first-quarter fiscal 2020 results, wherein both the top and the bottom line improved year over year. Further, the company witnessed robust same-store sales performance. This was the fifth straight quarter of positive earnings and sales surprises. Management stated that change in consumer behavior due to the coronavirus pandemic had a favorable impact on the performance.

Although management withdrew fiscal 2020 guidance issued on Mar 12, it still expects the company to surpass the same. The company had earlier projected an increase of 10% in earnings per share on a year-over-year basis. It had guided net sales growth of 7.5-8% and same-store sales increase of 2.5-3% for the fiscal year.



 

Strategic Endeavors to Drive Momentum

Better pricing, private label offerings, effective inventory management, and merchandise initiatives have aided Dollar General in carving out a niche in the retail space. It remains committed toward ramping up investments in the wake of rising competition from the likes of Dollar Tree (DLTR - Free Report) , Costco (COST - Free Report) and Ross Stores (ROST - Free Report) . The company’s everyday low-price model is anticipated to drive traffic persistently. We believe that store expansion initiatives, continued restructuring and the improvement of distribution centers should keep driving revenues higher.

Impressively, same-store sales increased 21.7% year over year owing to rise in average transaction amount and customer traffic during the first quarter. Consumables, Seasonal, Apparel and Home categories favorably impacted the metric. The metric improved 5.5%, 34.5% and 21.5% in the months of February, March and April, respectively. Dollar General also informed that since the end of the first quarter, it has continued to witness “elevated demand” across its stores. Since the end of first quarter and through May 26, same-store sales have risen roughly 22% compared with prior-year period.

In order to increase traffic, Dollar General has been focusing on both consumables and non-consumables categories. The company has been also offering better-for-you products at affordable prices. Additionally, the company has been expanding 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. By the end of fiscal 2020, the company plans to operate up to ten DG Fresh distribution facilities, which will serve roughly 12,000 stores.

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