This discounted retailer beat estimates by a penny last quarter. And nine analysts have increased their earnings forecasts for the company in the last 30 days.
Dollar General (DG)
From DRIP Investor
You have more cash in your pocket these days. Employment is up. Wages are growing albeit at still fairly modest levels, but they are growing). And your trips to the gas pump aren’t costing you as much as they were a year ago.
That you and most Americans have more money is a big reason retailers should do better. The fact is, however, that there is a sizable variance in terms of performance among retailing stocks. Retailers that are “caught in the middle,” without strong positions at either the luxury or discount ends of the market—think old-line department stores—are getting crushed. And retailers whose product offerings are especially vulnerable to online buying are hurting. So who should be successful in the retailing space? Retailers with a discernible niche, a focus on selling products that are not necessarily easy buys online, and a strong value proposition.
Retailers like Dollar General (DG). The discounter is coming off a solid 2015 in which it posted its 26th consecutive year of same-store sales growth. The company is carrying plenty of operating momentum into fiscal 2016, which should be a record year for the firm. The stock has done well in recent months and is trading around its 52-week high. Nevertheless, I see these shares outperforming the market this year.
Dollar General has more than 12,000 stores in 43 states and is among the largest small-box discount retailers by sales in the country. The company is generating the type of revenue growth that is scarce these days on Wall Street. Net sales increased nearly 8% in 2015. Departments with the most significant increases in net sales were candy and snacks, perishables, food, and tobacco—all product categories that are somewhat immune to online competition. Tobacco, in particular, represents a potential growth area for Dollar General as other retailers, such as CVS, have left the market.
Per-share profits in 2015 rose 13%. Results in 2016 will benefit from an extra week of sales as well as store expansions. The firm plans to open approximately 900 new stores and relocate or remodel 875 stores in fiscal 2016. For the year, the company’s sales target is 7% to 10% growth and 10% to 15% growth in per-share profits. Per-share results will benefit from continued stock buybacks. Since 2011, the company has repurchased 62 million shares at a total cost of $3.6 billion. Dollar General is also returning money to shareholders via dividends. The company recently boosted its dividend 14% to a quarterly rate of $0.25 per share.
Dollar General’s product categories are the sort of low-cost, “buy now” stuffs that are immune to the threat of online retailers. The stock can be bought at current prices, and price dips below $80 would represent especially attractive opportunities for accumulation.
Please note Dollar General offers a direct-purchase plan whereby any investor may buy the first share and every share of stock directly from the company.
Charles A. Carlson, CFA, DRIP Investor, www.dripinvestor.com, 800-233- 5922, April 2016