Dollar General Does it Again, but With a Pinch of Salt
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Discount retailer Dollar General (NYSE: DG) came out with stellar earnings once again, beating the Street on both the top and bottom lines in the first quarter. It even raised its earnings expectations for the year, something which can be expected from discount stores in times of economic friction.
On a perfect day, an impressive earnings report, including a bottom line jump of 36%, and an upbeat outlook would have sent shares upwards. However, that didn’t turn out to be the case for Dollar General. The company announced that some of its existing shareholders would sell 25 million of its common stock in a secondary offering. This throttled the positivity which the earnings brought along with them, sending the stock down some 3% as I write this.
But, I see this as a small hiccup and the company’s robust performance along with its long-term prospects should form the basis of our discussion.
The quarter in brief
Dollar General’s revenue jumped 13% from last year to $3.9 billion in the quarter as customers went hunting for value deals and spent more on each visit to the discounter’s stores. As a result, the retailer’s same-store sales spiked 6.7% from last year, a trend which has been seen in the last four quarters as well. Economic uncertainty has forced consumers to stretch their dollars and the same is visible from Dollar General’s quarter.
In fact, all the discounters have recorded improved same-store sales, revenue, and earnings in their recently reported quarters. Fellow discounter Dollar Tree’s (NASDAQ: DLTR) same-store sales increased 5.6% and earnings jumped 15% in its first quarter. Similarly, Family Dollar’s same-store sales had also improved when it came out with its earnings last time.
These trends are further indicative of the fact that consumers are looking to derive the maximum value out of their dollars and the discounters are the best option for them in such circumstances.
Gunning for more
Dollar General is following a two-pronged strategy to grow its business. First, it intends to maximize its geographical reach by opening more stores and next, it is focusing on expanding the products offered in its stores.
The retailer opened 128 new stores in the previous quarter, apart from remodeling or relocating another 224 stores. It broke ground for the first time in Massachusetts, a move which expanded Dollar General’s presence to 40 states and 10,052 stores. Furthermore, the retailer is also focusing on reducing costs and it opened two new distribution centers (DCs) in Bessemer, Alabama and Lubbock, California. These DCs enabled Dollar General save on transport costs, contributing to earnings growth in the process.
Dollar General’s arsenal of $1 items have helped it perform well, attracting more customers to its stores. The retailer continued and will continue to increase offerings of $1 products to further increase customer traffic in future and help deliver more value to investors.
The takeaway
Investors might have been unfortunate as Dollar General’s stock failed to record gains despite a good performance. However, considering the economic climate we are in now, I believe the good times for discount retailers will continue. Also, the company’s wide network of stores and continued effort to improve its offerings will stand it in good stead. Dollar General has handsomely beaten the S&P 500 so far this year, giving returns of 14.6% and I won’t be surprised at all if the trend continues in future.
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