Discussing Dollar General’s top line goals
After surpassing $20 billion in annual sales in fiscal 2015, Dollar General (DG) had set a target of achieving $30 billion in sales by fiscal 2020. This target meant a 50% increase over a span of five years.
As we already discussed, the company’s top line grew ~8% in fiscal 2016 to $22 billion. For fiscal 2017, management predicted a 4%–6% increase in sales. At the midpoint, this would result in total revenue of $23 million. To achieve its fiscal 2020 revenue target, the company’s top line should grow between 7% and 10% annually.
The retailer plans to continue its aggressive expansion spree and has identified 13,000 new store locations throughout the United States. It plans to expand its square footage at a 6% to 8% rate every fiscal year. After opening 900 stores in fiscal 2016, it plans to add another 1,000 stores in fiscal 2017.
Expense reduction is the core
Reducing expenses is one of Dollar General’s key focus areas. The company plans to reduce its SG&A (selling, general, and administration) expenses by 15% until fiscal 2020.
It has adopted a zero-based budgeting approach. Under this approach, companies typically cut costs by planning their expenses for a period from scratch rather than basing their budgets on previous performance.
A look at the bottom-line targets
Dollar General’s earnings per share jumped 12% YoY to $4.43 for full fiscal 2016. For fiscal 2017, it has forecasted an EPS range of $4.25 to $4.50, expecting a decline of ~2% YoY at the midpoint. As a result, the company would end up missing its long-term target of growing EPS by a 10%–15% range.
Investors looking for exposure to Dollar General through ETFs can consider the ProShares DJ Brookfield Global Infrastructure ETF (TOLZ), which invests 3.6% of its total holdings in the company.