At a moment when all of brick and mortar retailing can seem to be suffering, Dollar General (DG) has announced that it will open 975 new stores in 2019 and remodel 1,000 existing stores. For 2019 capital expenditures are projected at $775 million to $825 million or about 3% of sales. Besides the new stores the company will also invest in speeding up the introduction of self-checkout lines, optimizing restocking practices to reduce in-store labor demands, and in-sourcing of more perishable food distribution. (Importantly 10 of the new stores will be new smaller formats aimed at younger customers.) In the fourth quarter sales climbed 8.5% year over year with same store sales up 4% year over year. Same store sales climbed on increase in the average transaction amount and in customer traffic.
I think it’s safe to say that the new stores announcement is a statement of the company’s confidence in the future.
So why is Dollar General able to buck the trend that has taken down so many other retailers?
Partly because Dollar General isn’t like other retailers. Its stores are focused on thinly populated areas can’t support numerous retail competitors that are yet near sizable concentrations of customers. (Which is a very neat trick. 75% of Americans live within 5 miles of a Dollar General store.) The company tailors its price-points and in-store selection to cater to its customers and their modest incomes ($40,000 on average annually.) That means everything from downsizing bulk goods–paper towels, for example–into package sizes that don’t strain a weekly shopping budget, emphasizing convenience and small basket purchases (80% of items are priced at or below $5) making home delivery costly at digital competitors, and using consumables (77% of 2017 sales) to bring customers into stores while looking to other categories to boost margins. (For example, Dollar General has recently increased its health an beauty offerings.)
At the same time the company has become digitally savvy–in ways that match its customer base. For example, it’s mobile app features digital coupons, a traditional mainstay of shoppers in this demographic (as I remember from my own childhood.) Those coupons, just be chance, no doubt, give Dollar General lots of dat on shopper behavior. In 2018 the company began a pilot of scan-and-go checkout in some stores.The company has set up relatively modest expectations of $6.30 to $6.50 a share for 2019 (trailing 12-month earnings were $5.97 a share)–that plus the company’s focus on the domestic market should help it through any earnings recession turmoil (especially that connected to slowing economies in China and Europe) in the first three-quarters of 2019.
On March 19 I made Dollar General the #10 and last pick in my Special Report: 10 Stocks for the Earnings Recession on my JubakM.com subscription site. I also made the stock a pick in my Jubak Picks Portfolio. The stock closed today March 19 at $117.24. My target price is $128. The shares pay a 1.04% dividend
