More importantly, it looks like Dollar General Corp. (NYSE:DG)’s strategy of selling more consumable items in order to drive average ticket purchases higher is working. In the recently reported quarter, same-store sales increased 5.1% and revenue jumped 11.3% from the year-ago period to $4.39 billion.
However, the concentration of the product mix toward consumables, such as tobacco, has been hurting the gross margin, which declined 65 basis points from the year-ago quarter. Growth in non-GAAP net income was also slower than revenue. Dollar General Corp. (NYSE:DG) reported adjusted net income of $251 million, up 8.7% from last year.
On the positive side, it is evident that footfall is increasing. Revenue growth in the double digits is impressive as none of its peers managed to achieve this in their respective quarters. Management is of the opinion that Dollar General Corp. (NYSE:DG) is gaining market share in consumables, and this should continue driving average ticket sales higher.
Strategies worth noting
Dollar General Corp. (NYSE:DG) has completed rolling out tobacco across all its stores, and management believes that this has been a key driver in improving sales. Two-thirds of customers bundle their tobacco purchase with one or more items.
In addition, Dollar General has been rearranging and adding merchandise in its stores as well, and this seems to be proving fruitful. By better utilizing floor and shelf space, the company is looking to drive productivity gains in its older stores. In addition, it has also been rapidly expanding its store count and opened 375 new stores through the second quarter.
Dollar General Corp. (NYSE:DG) intends to open 650 new stores this fiscal year as it looks to extend its lead as the largest dollar store. Also, the company has just 69 stores in California, and it is focused on strengthening its position in that market further by optimizing its market entry strategy and using all its store formats to drive results.
Installation of coolers for perishable items is also moving forward at a rapid pace, apart from updating the design of its stores to make them more customer-friendly. Management is of the opinion that the updated design has led to better same-store sale performance, and customer feedback has been positive.
Dollar General’s estimate-topping performance in the previous quarter and positive management commentary pushed the stock near its 52-week highs. However, the company remains cautious about its performance going forward and didn’t boost its outlook.