A makeover at Dollar General is beginning to get results.
The retailer posted strong sales on Thursday, boosted by new customers streaming into the discount chain. Shopper traffic - and the amount they spent - grew in the third quarter, helping send the shares on their biggest rally in about six months.
Dollar General has been upgrading its stores and adding hundreds of new locations - part of a bid to go after a broader swath of shoppers, including a more upscale consumer who might not typically visit a dollar store.
“We are encouraged by the early progress,” Neil Saunders, managing director of GlobalData Retail, said in a note. “The company is capturing a more significant share of spending from middle income and more affluent Americans.”
Third-quarter profit amounted to 93 cents a share, missing analysts’ estimates by a penny. But comparable sales growth - a closely watched measure - came in at 4.3%. Analysts had projected 2.7%, according to Consensus Metrix.
The company now expects sales to grow 7% this year. It had previously forecast a range of 5% to 7%. It also narrowed its profit guidance, saying earnings would be $4.37 to $4.47 a share.
The stock gained as much as 6.3% to $96.60 on Thursday, marking the biggest intraday increase since June 1. The shares had climbed 23% this year through Wednesday’s close.
At a time of broader retrenchment in the retail industry, Dollar General is on a store-opening binge. Next year, it plans to add 900 new locations and remodel 1,000 current stores. It’s also relocating 100.
“Almost 75% of the population now live within five miles of a Dollar General store,” Saunders said. “This makes the company the closest and most convenient general merchant for millions, especially those living in rural areas.”