Dollar General (NYSE:DG) is streamlining its supply chain to better manage inventories across its more than 20,000 U.S. stores. The retailer plans to reduce its assortment of products and control stock levels to improve efficiency and cut theft and shrinkage. Additionally, the discount retailer is restructuring its distribution network and altering warehouse processes to speed up deliveries of goods to the stores.
Why Is DG Streamlining its Supply Chain?
The retailer’s CEO, Todd Vasos, stated on the Q1 earnings call that the company intends to get its inventory to the shelf as quickly as possible. Retailers have been facing the challenge of managing their inventory after fluctuating between product shortages and overstocking during the pandemic. This year, the retailer will drop 1,000 high-shrink items to combat theft, which has risen since the pandemic.
“High-shrink item” is a term for lost inventory, stolen, or damaged goods.
DG’s Improving Inventory Efficiency
In the first quarter, DG’s inventory per store dropped 9.5% year-over-year, indicating improved inventory efficiency. The company has tightened its on-time delivery requirements, leading to more on-time shipments. Additionally, DG recently closed seven warehouses and plans to shut down five more to cut costs and improve inventory flow. The company also plans to open two new distribution centers in Arkansas and Colorado to reduce transportation costs.
According to TipRanks’ “Bulls Say, Bears Say,” analysts bullish on DG approve of its improving operational efficiencies and have noticed “early signs of operational transformation success.”
Is DG a Good Investment?
Analysts remain cautiously optimistic about DG stock, with a Moderate Buy consensus rating based on seven Buys, nine Holds, and one Sell. Over the past year, DG has declined by more than 20%, and the average DG price target of $149.40 implies an upside potential of 17.2% from current levels.
