Predicting the Future Position of Dollar General Over the Next Three Years
By at least one metric, Dollar General (DG dropping by 0.34%) is the largest retailer in the nation. This discount chain dominates with over 20,000 stores, outpacing any other retailer in the United States. No competitor even comes close.
For a considerable period, Dollar General's approach of saturating rural regions with affordable discount stores and offering necessities and sundries in small packages at low prices proved to be a successful formula.
From its IPO in 2009 up until 2022's peak, the stock soared beyond 1,000%. However, since that peak, Dollar General has encountered difficulties. Profits have dwindled due to poor consumer spending resulting from inflation, and the company has also faced stiff competition from Walmart, which has captured market share through competitive pricing and expanding its multichannel and e-commerce business.
Dollar General stock now plunges by 71% from its 2022 high, potentially setting the stage for a rebound. Can Dollar General stage a comeback or will it persist in its struggles? Let's delve into what the company might look like in three years.
Dollar General's revitalization plan
Despite its struggles, Dollar General has managed to increase same-store sales and revenue, yet profits have declined. CEO Todd Vasos stated that consumers are still financially strained.
To reclaim profit growth, the company is concentrating on its "Back to Basics" strategy, centered on improved inventory management and in-stock levels, minimizing theft and shrinkage, and bolstering customer experience, such as an enhanced checkout process.
The company is also optimizing its supply chain to eradicate capacity constraints, focusing on merchandising, including investing in private labels and ensuring competitive pricing.
Dollar General has some innovative concepts to fuel its recovery, such as a same-day delivery trial, which appears to be a reaction to Walmart's e-commerce initiative, revamping stores under Project Elevate, aiming to transform 2,250 of its outdated stores, as well as performing 2,000 full remodels and opening 575 new stores in fiscal 2025, which commences in February. Apart from the same-day delivery pilot, launched in September, providing same-day delivery from about 75 stores through the DG app, Dollar General has also partnered with DoorDash to offer delivery from roughly 16,000 of its stores.
There's reason to be hopeful regarding the company's remodels as management claims they typically boost same-store sales by 6% to 8% through the addition of more coolers, enabling the sale of more perishable food items.
Where Dollar General will stand in 2027
After its recent tribulations, Dollar General's business stands at a turning point, and its position in 2027 will depend on the success of its revitalization efforts.
However, we can make some educated guesses based on the current trajectory of the business and its turnaround tactics. If the company establishes 575 stores each of the next three years, it will boast approximately 22,000 stores in three years, expanding its base by approximately 9%.
On the basis of its store expansion and a modest annual same-store sales growth of 2% to 3% over the next three years, its revenue would climb by 15% to 20%, reaching $46.7 billion to $48.7 billion.
Forecasting profits is more challenging, but it seems plausible to anticipate Dollar General's margins to improve, given their current weakness. Its gross margin currently stands at 29%, the lowest since it went public, and its operating margin is also at a historic low of 5% over the last four quarters.
With modest enhancement, Dollar General should be able to raise its operating margin from 5% to 7%. Combined with growth on the top line, this would lift its operating profit by a remarkable 70%, an exceptional gain within three years.
Considering the discount present in the stock, Dollar General should be amply rewarded if it can re-establish its margin expansion while continuing to grow revenue. If it manages to implement its rejuvenation plan and meet the targets above, the stock should thrive over the following three years.
In light of Dollar General's revitalization plan, the company is allocating resources towards improving inventory management, enhancing customer experience, and optimizing its supply chain, which includes investing in private labels and competitive pricing. (investing, finance, money)
To sustain its growth and regain profitability, Dollar General is focusing on expanding its store base, introducing innovative concepts like same-day delivery, and partnering with firms like DoorDash for delivery services. (finance, money, investing)
