Better pricing, private label offerings, effective inventory management, and merchandise initiatives have helped Dollar General Corporation DG in carving out a niche in the retail space. The company’s everyday low-price model is anticipated to draw customers who have been seeking both value and convenience amid soaring inflation. Focus on both consumables and non-consumables categories, store expansion initiatives, and continued restructuring are likely to drive revenues.
Dollar General has been deploying resources to enhance omni-channel capacities and adopt strategies to provide a seamless shopping experience, as evident from its partnership with DoorDash. The company’s initiatives such as DG Fresh, Fast Track and “pOpshelf,” coupled with a real estate growth strategy, position it well to gain market share by targeting low-to-middle income group consumers.
Talking about the company’s two 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 further improving on-shelf availability. 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.
Under DG Fresh, the company has been expanding its cooler facilities to enhance the sale of perishable items. During fiscal 2021, the company installed more than 65,000 cooler doors across its store base and again plans to install more than 65,000 cooler doors in fiscal 2022.
With respect to Fast Track, the company has been expanding its self-checkout facility, which was available in more than 6,100 stores at the end of fiscal 2021. The company plans to expand this offering to a total of up to 11,000 stores by the end of fiscal 2022. Additionally, the non-consumable initiative offering was available in nearly 11,700 stores at the end of fiscal 2021. The company plans to complete the rollout of the non-consumable initiative offering across the entire chain by the end of fiscal 2022.
Image Source: Zacks Investment Research
Store Expansion Well Underway
Dollar General has been making prudent investments relating to store infrastructure, store openings, expansions, remodels and relocations to drive revenues. Management incurred capital expenditures of $1.1 billion in fiscal 2021 and plans to spend $1.4-$1.5 billion in fiscal 2022.
Dollar General opened 1,050 new stores, remodeled 1,752 stores, and relocated 100 stores in fiscal 2021. 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.
In the final quarter of fiscal 2021, the company opened 25 new pOpshelf locations, bringing the total number of stores to 55 and exceeding the initial target of 50 stores. Additionally, the company opened 11 new store-within-a-store concepts during the quarter, bringing the total number of Dollar General Market stores to 25 at the end of the fiscal year. In fiscal 2022, the company plans to nearly triple the pOpshelf store count and inaugurate up to 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. The company aims at 1,000 pOpshelf locations by the end of fiscal 2025.
In the current scenario, people have been shopping at discount stores for essentials and other discretionary purchases. Quite obviously, Dollar General has emerged as a viable option for them. Its 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.
Despite the tough retail landscape, management anticipates fiscal 2022 net sales growth of about 10%, including an estimated benefit of approximately two percentage points from the 53rd week. It guided same-store sales growth of roughly 2.5%. Dollar General projected earnings per share growth in the range of 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 18% in the past six months compared with the industry’s rise of 16.4%. There is a likelihood that Dollar General, with a long-term earnings growth rate of 11.5% and a VGM Score of B, can attain new highs.
3 Looking Red Hot
Here we highlight three better-ranked stocks, namely, Target TGT, Tractor Supply Company TSCO and Sprouts Farmers Market SFM.
General merchandise retailer Target currently sports a Zacks Rank #2 (Buy). TGT has an expected EPS growth rate of 16.5% for three-five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Target’s current financial-year sales and EPS suggests growth of 3.5% and 6.7%, respectively, from the corresponding year-ago period’s levels. TGT has a trailing four-quarter earnings surprise of 21.3%, on average.
Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank #2 at present. TSCO has an expected EPS growth rate of 9.8% for three-five years.
The Zacks Consensus Estimate for Tractor Supply Company’s current financial-year sales and EPS suggests growth of 8.1% and 8.9%, respectively, from the corresponding year-ago period’s actuals. TSCO has a trailing four-quarter earnings surprise of 22%, on average.
Sprouts Farmers offering fresh, natural and organic food products currently carries a Zacks Rank of 2. SFM has an expected EPS growth rate of 7.3% for three-five years.
The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and EPS suggests growth of 4.5% and 6.2%, respectively, from the corresponding year-ago period’s readings. SFM has a trailing four-quarter earnings surprise of 17.9%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report