Dollar General has witnessed 23 consecutive years of same-store sale growth, and the company is focused on keeping the momentum intact. With more than 10,000 stores, Dollar General Corp. (NYSE:DG) already has a wide network, which is an advantage. But the company isn’t sitting idle, and it increased its selling square footage by 7% last year. Dollar General has been making forays in California and Massachusetts, two states where it doesn’t have a solid presence.
Dollar General is aggressively growing its network, and plans to open around 635 stores this year, apart from remodeling or relocating another 550. The discount retailer has been expanding its offerings, and is aggressively installing coolers in its stores in order to drive sales of consumables higher. The company has been gaining market share over rivals, and its moves into unaddressed areas would certainly help it in generating more revenue going forward.
Dollar General is also looking to keep costs under control. Its stores don’t require huge investments to build and operate, while the returns from these stores come pretty fast. The deployment of distribution centers should further help Dollar General Corp. (NYSE:DG) save costs and keep operating margin growth intact. In fact, the company’s gross margins would have improved this year had it not been for its tobacco offerings. However, on the brighter side, tobacco products are driving sales and helped the company achieve record revenue in the previous quarter.
Stiff competition
But, it shouldn’t be ignored that Dollar General is plying its trade in a highly competitive industry and a difficult macro environment, where margins are being squeezed by price wars and rising costs.
For instance, Dollar Tree is looking to go on the offensive with its ambitious store expansion plan, low pricing, installation of coolers, and other strategies to attract consumer attention. It is looking to increase square footage by 7.3% this year, after a 7.7% growth last year. Such moves clearly indicate the company’s ambitions, and it poses a serious challenge to Dollar General Corp. (NYSE:DG).
In addition, Wal-Mart Stores, Inc. (NYSE:WMT) is also doing its bit in escalating the price war. Wal-Mart is moving into the territory of dollar stores by offering merchandise for $1, and undercutting competitors on pricing. Wal-Mart is aggressively promoting its low prices, a move objected to by competitors. However, the retailer is already witnessing the benefits of low prices and aggressive advertising, as same-store sales jumped 1.2% after Wal-Mart’s promotional campaign.
The takeaway
Dollar General is looking to grow its revenue in a difficult environment through store expansions and better product assortment. The company is promoting sales of low-margin products in order to keep traffic intact and remain competitive. While it faces stiff competition from peers, the company stands to benefit from the tepid economic environment, driven by its wide store network and strategic moves. Keeping these factors in mind, it won’t come as a surprise if it continues to get better as the year progresses.
The article 1 Stock That You Should Never Discount originally appeared on Fool.com and is written by Harsh Chauhan.
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