Variety Discount Retail Chain Dollar General (NYSE: DG) is in a league of its own. The reason is simple, Dollar General operates 17,177 stores in 46 states (as of January 29, 2021) which puts it at about three times that of Walmart. Once more, given that three-quarters of their stores are in small communities, with populations less than 20,000, it places 75 percent of the U.S. population within five miles of a Dollar General. And while they do not have pharmacists on hand, they have half again as many doors as Walgreens or CVS. And whether that effort materializes, it speaks to the power of Dollar General to continue to penetrate a market segment that is growing inversely to the shrinking American middle class. As Forbes journalist Steven Dennis put it “The Covid-19 crisis has exacerbated the underlying drivers of polarization, creating greater distance between the haves and have-nots. The pandemic brought these differences into stark relief.”
Fortunately, Dollar General is stepping up to the plate in broadening both its consumables and non-consumable items. They have expanded cooler equipment to deal with perishable items, as well as offering “better for you” products at affordable prices. They are also maximizing efficiency and “contactless checkout” with DG Pickup and DG GO mobile checkout. Today’s Investor Call During today’s investors call Dollar General revealed profit estimates for the 2021 year to be below expectations, however with several caveats. First, they were non-committal as to the effects of the $1,400 stimulus checks, as well as the July and September child tax credits, both of which could boost projections. They estimate full-year 2021 same store sales to fall 4 to 6 percent compared with street estimates of a 1.2% decline. The pandemic year comps will be tough to beat.
As far as fiscal 2020, fourth quarter net sales increased 17.6% and fiscal year net sales increased 21.6%. Fourth quarter operating profit increased 21% to US$872.2M while fiscal year operating profit increased 54.4% to $3.6 billion. Q4 same-store sales increased 12.7% and for the fiscal year same-store sales increased 16.3%. The successful DG Fresh initiative is likely to put pressure on margins as growth continues in consumables as a percentage of overall sales. However, the growth in lower margin consumables will be offset by increased efficiency in supply chain, sourcing, and increasing sales in private label products. Dollar General also noted that with the pandemic sales boom the retailer was able to repurchase $2.5 billion in outstanding shares.
Pandemic Market Penetration There was strong confidence expressed that increased customer and market penetration coinciding with the pandemic sales will stick. Credit goes to their new concepts including, DG Fresh, Dollar General Traditional Plus (DGP) and Pop-Shelf. The DG Fresh initiative which launched in 2019 is now in 16,000+ stores. Its introduction brought frozen goods, milk, cheese, and deli meats into the stores. Additionally, they have plans to introduce produce into 1,800 stores in 2021. Over the course of 2020, they added 62,000 cooler doors to stores.
Their other new initiative, Popshelf shows great promise. The stores feature seasonal and home décor, home cleaning supplies, health and beauty aids, party, and entertaining goods. They boast a five-dollar or less price for 95% of the goods. Additionally, they are drawing a higher income customer in the $50,000 to $125,000 range, far north of DG’s average US$35,000 to US$40,000 income level consumer. The 9,000 square foot stores are classified as a “Fun, affordable treasure hunt.” And while they were slated for 30 buildouts in 2021, that has been accelerated to 50 stores by year-end. Additionally, Popshelf’s products have become store-in-store features in many of their core stores.
More Growth on the Horizon Even with its 17,000+ stores, the retailer still sees a long runway. This year’s initiatives include plans to execute 2,900 real estate projects, inclusive of 1.050 new stores, 1,750 remodels, and 100 relocations. Additionally, long term they believe the market can absorb another 13,000 additional small box Dollar General stores, along with 3,000 Popshelf units. And while many other retailers are shrinking footprints, DG said that its two newest retail prototypes will grow to between 8,500 and 9,500 square feet respectively. These are both larger than the 7,300 square foot existing store average.
As Far as DG e-commerce initiatives go, their efforts to create contactless sales during the pandemic led to DG pick-up in 10,000 stores and 1600 stores with self-checkout. Its e-commerce digital app has four million active users.