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Why Did Dollar General Corp. Shares Gain 11% in January?

By Daniel B. Kline - Feb 12, 2018 at 4:51PM

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The company has shown an impressive ability to grow quickly.

Call Dollar General (DG -0.65%) one of the winners of the retail apocalypse. The company has found a model that works, driving people to its stores at a time when other retailers are losing sales to online business.

It's a model that makes sense. Dollar General fills a niche. It sells some grocery items, household goods, and a selection of things you may not want to wait for, all at very low prices. A consumer might go in to buy some soda, then leave with a frozen meal, a light bulb, and some ready-to-drink coffee. That's an experience the internet -- even companies offering two-hour delivery -- can't deliver to an audience that may not have $35 to spend to meet minimum order thresholds anyway.

A Dollar General store

Dollar General is expanding rapidly at a time when other retailers are shrinking. Image source: Dollar General.

What happened

Dollar General reported strong earnings for the third quarter in early December, and that carried the company through the month of January. Net sales increased by 11% for the quarter, with same-store sales rising by 4.3%. Earnings per share (EPS) rose as well, from $0.84 in Q3 2016 to $0.93 in the same period in 2017.

So what

At a time when other retailers are losing sales, closing locations, or even going out of business entirely, Dollar General is growing overall sales, same-store sales, and its store count. Post-earnings shares in the company climbed steadily. They closed December at $93.01, then rose to $103.12 at the end of January -- a nearly 11% increase, according to data provided by S&P Global Market Intelligence.

Now what

Dollar General's ongoing strength is not just same-store sales growth. It's the fact that the company added more than 1,000 stores last year and has even bigger plans for 2018.

"For fiscal 2018, we have plans to execute approximately 2,000 real estate projects comprised of 900 new stores, 1,000 store remodels and 100 store relocations," CEO Todd Vasos said in the company's recent earnings release. "We continue to believe that investing in the business through our high-return new store growth is the best use of our capital to help drive long-term shareholder value."

That's a model the company has shown over the past few years that it can pull off. There's no reason to believe it won't continue that success in 2018 and beyond.

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