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Dollar General: Service Level Investments to Secure Customer Loyalty

Thomas Paulson
Mar 17, 2023
Dollar General: Service Level Investments to Secure Customer Loyalty

Following on the heels of Dollar Tree’s Q4 2022 results, Dollar General reported solid sales and earnings growth with comparable-store increases of +5.7%. The release quotes incoming CEO Jeff Owen saying, “Our fourth-quarter sales results were strong, although below our expectations, and we are pleased with continued market share gains in both consumables and non-consumables, as well as continued growth with new and existing customers…We made significant progress advancing our operating priorities and strategic initiatives in fiscal 2022, including executing nearly 3,000 real estate projects, completing the rollout of our non-consumables initiative, nearly tripling our pOpshelf store count, more-than-doubling the size of our private tractor fleet, and opening three new distribution centers. As a result, we believe we are well-positioned to continue serving our customers with our unique combination of value and convenience in the communities we call home. Looking ahead, we are excited about our plans for fiscal 2023, which include continued investment in our strategic initiatives and an incremental investment of approximately $100 million in our stores, primarily in incremental labor hours, as we look to build on our sales momentum and capture additional market share by further enhancing store standards and the in-store experience.” (Higher store and service standards was one of our themes for retail in 2023).

  • Management’s outlook for comparable-store sales in 2023 remains +3.0%-3.5%. With respect to stores, the goal remains 1,050 new stores, 2,000 remodels, and 120 store relocations. (The capex level is being increased due to remodels and the share buyback level decreased to invest more in the stores.)
  • Owen said, “Q4 2022 comp sales were driven by an increase in average basket size, primarily attributable to inflation and partially offset by a slight decrease in customer traffic...and similar to recent quarters, average units per basket were down. Notably, both November and January comp sales at 6.7% and 6.5%, respectively, were within our expected range of 6 for the quarter. However, our December sales performance was negatively impacted by winter storm Elliott, which had the most significant effect on our stores in the final days leading up to Christmas.”
  • On customer behavior, Owen said, “In addition to adjusting the mix of their baskets, we continue to see customers shift spending to more affordable options, including our private brands, which represent more than 20% of our total sales…With regard to trade-in behavior, customers and income brackets above our core customers are shopping with us at an increasing rate, underscoring our belief that our value and convenience proposition resonates with a broad spectrum of customers.”
  • What strikes us about the numbers in the table below, is the incredible consistency of the 3-year CAGRs between brands and quarters, and despite substantial changes in the economic conditions for the discount and dollar store customer.
  • On DG Fresh, Owen said, “DG Fresh also aims to increase sales in frozen and refrigerated categories. We are pleased with the performance on this front, including enhanced product offerings in stores and strong performance from our perishables department, which had our strongest rate of comp sales growth during 2022...And while produce is not included in our initial rollout, we continue to believe that DG Fresh provides a potential path forward to expanding our produce offering to more than 10,000 stores over time. To that end, at the end of 2022, we offered fresh produce in more than 3,200 stores with plans to expand this offering to a total of more than 5,000 stores by the end of 2023. Finally, DG Fresh has also extended the reach of our cooler expansion program…We added more than 66,000 cooler doors across our store base. And we plan to install a similar number in 2023.”
  • On pOpshelf, Owen said, “During the quarter, we opened 37 new pOpshelf locations, bringing the total number of stores to 140 at the end of 2022, located within 14 states. While sales in this economic environment have been somewhat softer than our earlier results, we continue to be pleased with the customer response. Looking ahead, we plan to more than double the pOpshelf shell store count in 2023, bringing the total number of pOpshelf stores to nearly 300 by year-end, and we are excited about our goal of approximately 1,000 locations by year-end 2025.

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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