💲 Can Dollar General Grow Under A New General?

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💲 Dollar General: Worth The Dollar?

Discount retailer Dollar General Corp. (DG) will have a new CEO at the end of the year. Jeffery Owen is taking over at a tricky time. He has to counter inflation, a tight labor market, and deal with disgruntled employees. Will he prove to be worth his weight in salt?

The Poor Man’s Walmart

Rick Dreiling is credited with taking Dollar General public again in 2009. Since then, shares have given positive annual returns every single year. Under Dreiling, Dollar General expanded product offerings, added more stores, and nearly doubled sales.

Dollar General appointed Todd Vasos as CEO in 2015 to replace the retiring Dreiling. Vasos has been part of the company since 2008, first as merchandising chief and then as COO in 2013.

The transition occurred amidst Dollar General’s failed bid to acquire Family Dollar Stores. The two parties negotiated for years before rival Dollar Tree put up a surprise bid. Family Dollar shareholders chose Dollar Tree over Dollar General’s higher but riskier offer. Dollar General returned to the drawing board.

It doubled down on a simple strategy – “Go where Walmart isn’t.” The retail giant retaliated by opening over 100 rural Walmart Express stores, which eventually shut down. Dozens of those stores were sold to Dollar General!

Under Vasos’ expansion plans, Dollar General introduced self-distribution of frozen and refrigerated goods through DG Fresh. Fresh produce’s availability has grown from just 400 stores to ~2.5K stores.

Dollar General’s USP is to sell merchandise for $1. It persists with this strategy even as rival Dollar Tree raised the minimum price to $1.25. In another significant strategy change, Dollar General opened “Popshelf,” a new chain selling more home decor and items costing $5 or less. It plans on opening over 200 Popshelf locations this year.

Under Vasos’ seven-year tenure, Dollar General has added ~6.5K new stores and plans to open another 1K this year. Annual sales have grown 80% to over $34B, and the employee count has risen to 163K from 110K. The company has also announced a foray into the Mexican market.

Jeffery Owen will replace Vasos as CEO in November this year. Vasos will continue in a senior advisory position until April 2023. Owen has been part of Dollar General since 1992, when he joined as a store manager trainee. He has been the COO since 2019. Dollar General’s statement calls Owen a “strategic thinker, strong collaborator, and proven leader.”

A Tricky Entry

Discount retailers like Dollar General do well during a slowdown as consumers with reduced income look for cheaper alternatives to their regular purchases. Dollar General outperformed all other S&P 500 stocks during the Global Financial Crisis of 2008, rising over 60%.

The US is currently grappling with its worst inflation in four decades. Companies like Dollar General are facing increasing freight and labor costs which are hurting margins.

Dollar General’s same-store sales for the April quarter declined 0.1% as fewer shoppers visited. However, profit beat estimates. It now expects same-store sales to rise 3% to 3.5% this year, compared to the earlier forecast of 2.5%.

The company’s business has fared better in comparison to Dollar Tree. The latter finds it challenging to integrate Family Dollar even after years of acquiring the company. Price hikes contributed to Dollar Tree’s 11.2% sales growth in Q1, but same-store sales at Family Dollar declined 2.8%.

However, Dollar Tree’s shares have outperformed Dollar General’s over the last 12 months, gaining 67%. In comparison, Dollar General’s stock is up only 12%. The outperformance comes after activist investors replaced its leadership. Over Vasos’ tenure as CEO, Dollar General has outperformed its rival. Both companies trade at a trailing-12-month price-to-earnings ratio of 25x.

Even as the business grows, Dollar General employees are unhappy. Last month, a store manager in Florida put up a six-part series on TikTok called “Retail Store Manager Life.” The videos showed long working hours, poor working conditions, the unexpected arrival of shipments, and no staff to unpack them. The video also featured angry customers who could not navigate the stores due to blocked aisles.

Dollar General asked the employee to take the videos down as they went viral and fired her in three days when she refused. The controversy has restarted efforts to unionize Dollar General’s locations. The former employee is also in talks for a class-action lawsuit against the company.

Ohio’s building department shut two Dollar General stores last week due to “filthy internal conditions” like dirty floors, crowded aisles, and difficulty in reaching the electric panel, which posed a life risk.

Jeffery Owen has a tough task at hand. The US is heading towards a recession, there is simmering dissent among employees, and competition is where it is. Shareholders would expect Owen to continue Dollar General’s consistent performance. The onus now lies on Dollar General’s new general to be worth every dollar of the consumers, shareholders, and employees alike!

Market Reaction
DG ended at $246.63, down 0.37%.

Company Snapshot 📈

DG 246.63 -0.91 (0.37%)

Analyst Ratings (26 Analysts) BUY 73% HOLD 15% SELL 12%

Newsworthy 📰

Moving On: Netflix partners with Microsoft on ad-supported subscription plan (NFLX +1.21%)

Confidence: Delta Airlines predicts travel rebound will stretch past this summer (DAL -4.47%)

Increasing: Buffett’s Berkshire owns 19.2% of Occidental Petroleum after new purchases (OXY +1.10%)

Later Today 🕒

JPMorgan Chase & Co. Earnings (JPM)
Morgan Stanley Earnings (MS)
Taiwan Semiconductor Manufacturing Co. Ltd. Earnings (TSM)
Charles Schwab Corp. Earnings (SCHW)
American Outdoor Brands Inc. Earnings (AOUT)
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6:00 PM IST: Initial Jobless Claims
6:00 PM IST: Producer Price Index

Today’s Fun Fact

~40 million people shop at Walmart everyday; that’s more than Canada’s population

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