Dollar General’s Healthy Margins and Strong Top Line Growth
Evaluating Dollar General’s top line performance
Dollar General (DG) is the largest player in the US discount store industry with total sales of $22 billion in fiscal 2016 (ending February 3, 2017). Its top line has grown at a CAGR (compound annual growth rate) of 8.2% over the last five years.
The company has done a great job both in terms of same-store sales growth and store expansion. This success has enabled the company to take away market share from other big retailers. Its sales comps grew for 36 consecutive years until they turned negative in the third quarter of 2016. Read more about the comps performance in the next part of this series.
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What’s been behind this growth?
The company’s focus on providing convenience along with quality products at competitive prices has helped Dollar General sustain an extremely competitive retail environment. The company has worked toward maintaining its position as a low-cost operator by improving operating efficiency and cutting costs.
Top line growth has come alongside solid earnings improvement
What’s more impressive is the fact that DG has achieved robust sales growth along with a steady increase in earnings per share. The company’s EPS has grown at a CAGR (compound annual growth rate) of 13.6% over the last five fiscal years.
In comparison, Dollar Tree’s (DLTR) earnings rose 13.4% during the same period, although the majority of the increase was attributable to the integration of the Family Dollar stores.
Mass merchandisers Walmart (WMT), Target(TGT), and Costco (COST) have also trailed Dollar General when it comes to growing the bottom line. While the EPS of Target and Costco increased at a CAGR of 3.2% and 10.1%, respectively, during the last five years, Walmart’s fell 0.1%.
Investors looking for exposure to Dollar General, Dollar Tree, Walmart, Target, and Costco can consider investing in the SPDR S&P Retail ETF (XRT), which invests 5.5% of its total holdings in the companies.