Dollar General (DG) (Retail) $87 – Down 30% on weaker than expected numbers, avoid till we see some improvement.
Dollar General’s growth has been tepid at 4%, which is not surprising given its customer base that is highly exposed to inflation – their core customers are financially constrained. But what is even more worrying is that comparables or same store sales growth (best measure for retail/restaurant chains) was a even lower 0.5%. Perhaps the brains trust should not have been expanding stores in a difficult environment. That has hit profitability – down 20% as well.
- Rising competition from Walmart, Aldi, and ultra-low-cost brands like Temu further challenges DG’s business model, especially in non-food categories.
- Sentiment indicators suggest that sentiment for the poorest third of Americans is at levels we saw during the bottom of the Great Financial Crisis – not a good place to be.
- Is the 30% drop enough? Guidance doesn’t seem to suggest so – The company sees net sales growth between 4.7%-5.3%, down from previous expectations of 6.0%-6.7% growth. Same-store sales are expected to grow by no more than 1.6% – adjusted 1.1% lower. .
- The other problem with DG is that even on a historical 10 year the stock has returned only 38%, so you have to be really careful about buying it at the right price. I would wait to see some improvement.