💲 Can Dollar General Grow Under A New General?
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💲 Dollar General: Worth The Dollar?
Discount retailer Dollar General Corp.’s (DG) CEO Todd Vasos is retiring this year. COO Jeffery Owen will take charge as CEO in November this year. Dollar General has underperformed rival Dollar Tree over the last 12 months, even while the business has done well. Can Owen successfully fill in the big boots left behind by his predecessors?
The Poor Man’s Walmart
Dollar General appointed Todd Vasos as CEO in 2015 to replace retiring CEO, Rick Dreiling. Vasos has been part of the company since 2008 as merchandising chief before becoming COO in 2013.
As CEO, Dreiling is credited for the retailer’s second IPO in 2009, expanding the company’s product offerings, adding more stores, and nearly doubling sales from ~$10B to $18B in 2014.
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.
Dollar General 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. Instead, it sold dozens of those stores 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. It will also open another 1K stores this year.
Under Vasos’ seven-year tenure, Dollar General has added ~6.5K new stores, annual sales have grown 80% to over $34B, and 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.
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 five years, Dollar General has outperformed its rival on share price returns. 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” and multiple other violations. Dirty floors, crowded aisles, and difficulty in reaching the electric panel, which posed a life risk, were some other issues raised by the administration.
Jeffery Owen is taking over during a tricky phase. The US is heading towards a recession, there is simmering dissent among employees, and competition is where it is. Shareholders would expect Owen to replicate the consistent business performance of his predecessors. The onus now lies on DG’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%.
Newsworthy 📰
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