By at least one measure, Dollar General (DG 0.48%) is the biggest retailer in the country. The discount chain has more stores under its banner than any other retailer in the U.S. with more than 20,000 stores. No other retailer comes close.
For a long time, Dollar General's strategy of blanketing rural parts of the country with discount stores and offering essential products and sundries at low prices in small pack sizes was a winning formula.
From its IPO in 2009 to its peak in 2022, the stock gained more than 1,000%. However, since that peak, Dollar General has struggled. Profits have fallen as the company has been hit by weak consumer spending due to inflation, and it's also struggled with intense competition from Walmart, which has grabbed market share through competitive prices and expanding its omnichannel and e-commerce business.
Dollar General stock is now down 71% from its peak in 2022, which potentially sets up the stock for a comeback. Can Dollar General rally from here or will it continue to struggle? Let's take a look at what the company might look like in three years.
Image source: Getty Images.
Dollar General's turnaround strategy
Even as the business has struggled, Dollar General has managed to grow same-store sales and revenue, but profits have fallen. CEO Todd Vasos said that its consumers are still "financially constrained."
To return to bottom-line growth, the company is focused on its "Back to Basics" strategy, which includes improved inventory management and in-stock levels, reduced theft and shrink, and improving its customer experience including a better checkout experience.
It's also improving its supply chain to remove capacity constraints, and working on its merchandising, including investing in private brands and ensuring it's competitive on price.
The company has some new ideas to drive its turnaround as well such as a same-day delivery pilot, which seems to be a response to Walmart's own e-commerce initiative, remodeling stores under its Project Elevate, which is aimed at remodeling 2,250 of its older stores. Additionally, it plans to do 2,000 full remodels and 575 store openings in fiscal 2025, which starts in February. In addition to the delivery pilot which started in September, offering same-day delivery from about 75 stores through the DG app, Dollar General has also partnered with DoorDash to offer delivery from around 16,000 of its stores.
There is reason to be optimistic about the company's remodels as management said they typically increase same-store sales by 6%-8% due in part to adding more coolers, allowing it to sell more perishable foods.
Where Dollar General will be in 2027
After its recent challenges, Dollar General's business is clearly in flux, and its position in 2027 will depend on the success of its turnaround efforts.
However, we can make some determinations based on the current trajectory of the business and its turnaround plans. If the company opens 575 stores in each of the next three years, it will have roughly 22,000 stores in three years, growing its base by about 9%.
Based on its store expansion and a modest same-store sales growth of 2%-3% annually over the next three years, its revenue would grow by 15%-20%, reaching $46.7 billion to $48.7 billion.
Forecasting the bottom line is more difficult, but it seems reasonable to expect Dollar General's margins to improve as they are especially weak right now. Its gross margin at 29% is the lowest it's been since it went public and its operating margin is also at a historic low at 5% over the last four quarters.
With modest improvement, Dollar General should be able to lift its operating margin from 5% to 7%. Combined with growth on the top line, that would lift its operating profit by nearly 70%, which would be impressive in just three years.
Considering the discount in the stock, Dollar General will likely be rewarded if it can get back to margin expansion while continuing to grow revenue. If it can execute its turnaround strategy and hit the targets above, the stock should be a winner over the next three years.
