Tobacco rollout will be followed by beer and wine in the stores. These products are low margin products but still they will drive same store sales growth in the future.
Peer analysis
In the Dollar stores category, the other two players that are behind Dollar General Corp. (NYSE:DG) are Dollar Tree, Inc. (NASDAQ:DLTR) and Family Dollar Stores, Inc. (NYSE:FDO).
Dollar Tree is also expanding its store base this year with 340 new stores and 75 store relocations in the US and Canada. It will rollout Master Card across the chain in this fiscal year, and it will have a positive impact on the Dollar Tree Direct sales.
Its new Deal$ concept and merchandising initiative with 40% extra impulsive buying items are expected to drive sales growth. It has taken off the $1 restriction, and it will help it to offer more products in value offerings.
Family Dollar Stores is expanding its store base under its Fee Development Program, where new stores will be opened with better financing options. In this program, it will develop stores and sell or lease it to others.
The company has strong expansion plans, and 450-500 stores are expected to open in this fiscal year. Its gross margin has declined by 146 basis points in the second quarter. This downfall was due to the weak performance of discretionary categories like Home and Apparel. It is expanding its private labels, and focusing on more direct sourcing to enhance margins in the future.
| P/S ratio | Op. Margin | 1Yr. Fwd. P/E | |
|---|---|---|---|
| Dollar General | 0.97 | 9.33% | 13.59 |
| Dollar Tree | 1.52 | 11.61% | 15.55 |
| Family Dollar Store | 0.66 | 7.50% | 14.84 |
Source: Google Finance and Yahoo! Finance
Dollar General Corp. (NYSE:DG) has reported operating margin of 9.33% and the lowest one-year forward P/E ratio of 13.59 among the three mentioned peers. Dollar Tree has the highest operating margin of 11.61%, but with a P/S ratio of 1.52. Family Dollar Store has the lowest P/S ratio of 0.66 and moderate forward P/E of 14.84 among peers.
Conclusion
Dollar General Corp. (NYSE:DG) is the biggest dollar chain in the U.S. and is still expanding its store base to achieve sales growth. Its new format stores, DG Plus and DG Market stores, with more coolers and freezers will drive sales with more fresh products in stock. Its merchandising initiative with new planograms on SKUs along with the tobacco rollout across stores is expected to drive its sales growth. So, I recommend a Buy for long-term growth.
Ash Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article This Dollar Store is Growing Fast originally appeared on Fool.com.
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