Analysts raised price target
Dollar General (DG) reported an 8.8% rise in its adjusted EPS and 8.3% sales growth in the fiscal 2019 first quarter, which ended on May 3. Dollar General exceeded analysts’ sales and earnings expectations in the first quarter. Many analysts raised their price target for Dollar General stock following its first-quarter performance:
- Credit Suisse: $130 from $108
- Telsey Advisory Group: $138 from $129
- Jefferies: $118 from $104
- RBC: $139 from $133
- BMO: $140 from $133
- Raymond James: $146 from $127
- UBS: $143 from $126
Dollar General stock was rated a “buy” by 69% or 20 out of 29 analysts covering the discount retailer as of May 31. Eight analysts rated the stock a “hold,” while one analyst had a “sell” recommendation. Fiscal 2018, which ended on February 1, marked the 29th consecutive year of same-store sales growth for Dollar General. The discount retailer has a strong position in the consumables category and is further strengthening its presence by adding more freezers and coolers to its stores.
However, consumables carry a lower gross margin than non-consumables. Dollar General had refreshed and expanded its non-consumable merchandise in key categories (including home, domestics, and party) in over 1,100 stores as of the end of fiscal 2019’s first quarter and aims to further roll out the expanded merchandise to 2,400 stores by the end of fiscal 2019.
Dollar General also announced two new initiatives, DG Fresh and Fast Track, which are expected to improve margins over the long term. DG Fresh is a multi-phase shift to self-distribution of fresh and frozen products, which is expected to boost sales, reduce product costs, and improve in-stock position. The company’s Fast Track initiative aims to increase store labor productivity and in-stock positions. Dollar General intends to open 975 new stores, remodel 1,000 stores, and relocate close to 100 stores in fiscal 2019.
Despite the company’s strategic initiatives, any further increase in tariffs on Chinese imports is expected to impact its growth prospects adversely. As of May 31, the 12-month price target for Dollar General stock was $136.04, which reflects a potential rise of about 7.0%. Dollar General stock was up 17.8% on a year-to-date basis as of May 31.