How Dollar General’s Valuation Stacks Up against Dollar Tree’s

Forward valuation

Dollar General’s (DG) 12-month forward PE ratio was 17.6x as of March 15. In comparison, closest rival Dollar Tree (DLTR) was trading at 18.7x. As discussed in the previous parts of this series, Dollar General missed analysts’ earnings expectations and issued lower-than-expected earnings guidance for fiscal 2019 as higher expenses associated with growth initiatives might weigh on the company’s bottom line.

How Dollar General’s Valuation Stacks Up against Dollar Tree’s

Analysts expect Dollar General’s adjusted EPS to rise 8.8% to $6.50 in fiscal 2019 on expected sales growth of 7.5%. Analysts forecast Dollar Tree’s adjusted EPS to decline about 1.9% to $5.35 in fiscal 2019 on sales growth of 4.0%.

Growth initiatives

In part two of this series, we discussed Dollar General’s strategy to roll out its expanded non-consumables offering to more stores. Aside from its existing strategic plans, Dollar General announced two new transformational strategic plans called DG Fresh and Fast Track.

The company’s DG Fresh initiative involves self-distribution of perishable goods, mainly fresh and frozen products. The DG Fresh initiative, which began in early 2019, is already functional in about 300 stores. Under this initiative, the company is distributing perishables from a new Cold Storage Facility in Pottsville, Pennsylvania, to 300 Dollar General stores. Dollar General aims to distribute perishables to 5,000 stores from four new DG Fresh distribution facilities by the end of fiscal 2019. The company’s goal is to fully roll out DG Fresh throughout its chain within three to four years.

Dollar General’s other new transformation initiative is Fast Track, which aims to increase store labor productivity, enhanced customer shopping experience, and improve on-shelf availability. To support these goals, Dollar General aims to pilot the buy online, pick up in store facility later this year.

Dollar General’s store growth plans for fiscal 2019 include opening 975 new stores, the remodeling of 1,000 mature stores, and the relocation of 100 stores. The company will remodel about 500 stores in the Dollar General traditional plus format.

Expenses associated with the company’s growth initiatives are expected to weigh on its profitability in fiscal 2019.