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Dollar General's Bold Move: Same-Day Delivery Could Make or Break the Stock

AInvestFriday, Jan 3, 2025 4:27 am ET
6min read


Dollar General (NYSE: DG) is a discount retailer that's been facing numerous challenges in recent years, including rising costs, tariffs, and intense competition from online retailers. Despite these hurdles, the company is making a bold move to offer same-day delivery, which could potentially turn its fortunes around. But will this new service make or break the stock? Let's dive into the details and analyze the potential impact on Dollar General's future.



Dollar General's Same-Day Delivery Rollout

In December 2024, Dollar General reported its third-quarter results, which were lackluster, with same-store sales growth of just 1.3%. However, the bigger news was the company's announcement that it had begun testing same-day delivery at 75 locations. The goal is to expand this service to "thousands of stores" in the future, partnering with an unnamed third-party provider to handle the deliveries.



Why Same-Day Delivery Matters for Dollar General

Offering same-day delivery is a strategic move for Dollar General, as it allows the company to reach a wider range of customers and compete more effectively with online retailers like Temu and Amazon. By providing this convenient service, Dollar General can attract customers who are already shopping online and prefer the convenience of home delivery. Additionally, same-day delivery can help the company reach customers who may not have easy access to its physical stores, particularly in rural areas.



However, there are potential risks and challenges associated with the expansion of same-day delivery services. Delivery fees can be significant for a business like Dollar General, which already runs on tight margins. If not managed properly, the additional costs could negatively impact the company's profit margins. Additionally, other retailers may respond to Dollar General's move by improving their own delivery services or lowering prices, which could intensify competition in the market.



Will Same-Day Delivery Boost Dollar General's Stock?

Dollar General's stock looks cheap, trading at just 12 times its trailing earnings. However, with its margins worsening and its same-store sales growth barely over 1%, there's little reason to get excited about the retail stock right now. The prudent thing for investors to do would be to wait and see how Dollar General's results look as same-day delivery becomes more widespread. If the growth rate starts to accelerate, that might be a positive sign that the delivery service is attracting interest from consumers. At the same time, investors should also pay attention to the profit margin, to see if there's a further drop there.



In conclusion, Dollar General's same-day delivery service could potentially boost the company's sales growth and customer retention. However, the success of this new service will depend on the demand from customers and the company's ability to manage the additional costs effectively. As the rollout continues, investors should monitor Dollar General's sales growth and profit margins to assess the success of this new service. While the stock may look cheap now, the true value of Dollar General's same-day delivery service will become apparent as the company's financial performance evolves in the coming years.
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