Does Dollar General (DG) Deserve A Place In Your Portfolio?

Dollar General Corporation (NYSE:DG) continues to witness growth on the back of better price management, merchandise, cost containment and operational initiatives. Moreover, in order to increase traffic, the company has been focusing on both consumables and discretionary categories. All these endeavors helped the company to post fifth straight quarter of positive earnings surprise when it reported first-quarter fiscal 2016 results.

We believe that the aforesaid initiatives undertaken by the company should drive sales and margin trends. Moreover, Dollar General is focusing on consumables as well as discretionary categories, along with items between $1 and $5, to increase traffic. Notably, the rollout of tobacco has been a key factor in boosting traffic.

DOLLAR GENERAL Price and Consensus

DOLLAR GENERAL Price and Consensus | DOLLAR GENERAL Quote

Further, the company is expanding its cooler facilities to enhance the sale of perishable items, and is also introducing the DG digital coupon program. Sales at the consumables division continued to improve in the fiscal first quarter. Dollar General’s model indicates earnings per share annual growth target of 10–15% and net sales increase of 7–10%.

Dollar General, which shares space with the likes of Dollar Tree, Inc. (NASDAQ:DLTR) , Wal-Mart Stores Inc. (NYSE:WMT) and Burlington Stores, Inc. (NYSE:BURL) , is on a store opening spree. The company opened 700 new outlets and remodeled or relocated 915 stores during fiscal 2014. In fiscal 2015, the company opened about 730 new stores, and relocated or remodeled about 881 stores. The company plans to open about 900 new stores and relocate or remodel around 875 stores in fiscal 2016. During fiscal 2017, the company plans to open about 1,000 stores and remodel or relocate approximately 900 stores. The company is now focusing on smaller format stores as they require less capital expenditure and will help to cope with space constraint.