3 Key Reasons to Invest In Dollar General Corp. (DG)

3) The possibility to increase the number of shops

The chance to open new stores in both preexisting and new markets has been studied and set in motion by Dollar General with compelling results (see Graph 3). Since 2007, the store base expansion has rounded an annual 7%. According to the latest Management´s Earnings Call, around 50% of 2013’s capital expenditure will be allocated for store growth and development, which means that approximately $300 million will be invested in new shops, remodels, relocations and the acquisition of preexisting store locations. Seems important to remark that, due to low cost building and operating, a new shop only costs $170,000, permitting a considerable yearly increase in the number of subsidiaries. Analysts (i.e. Credit Suisse) feel confident about the remaining growth potential and, although they predict some slowing down in the development rate, they estimate that over 15,000 Dollar Stores can still be introduced successfully in the US market.

The previously mentioned low costs allow that investment in new shops is rapidly balanced. As Richard W. Dreiling, Chairman and Chief Executive Officer at Dollar General, assures: “Our new traditional stores have a capital requirement of only $170,000. With a very fast sales ramp-up, our new stores are typically cash flow-positive in year 1 and have an average cash payback in under 2 years. This model provides us with continued great store economics. Despite our remarkable store growth over the past 4 years, we believe there still remains substantial opportunity for store growth in new and existing states.”

My foolish view

In conclusion, a combination of sectoral and company growth potential, along with an outstanding performance and a best-in-class execution, makes Dollar General an investment opportunity that remains quite appealing.