Dollar General – Analysis of Operations and Company Summary
Earnings May 28th
TL;DR – Overall looking bullish on DG as main customer base becomes more reliant than ever on stretching budgets on essential items during COVID and mass unemployment. Calls on DG; watch WMT (earnings on 5-19) to get an idea of what could happen to DG.
Hello WSB; my thesis is that as DG approaches earnings they will be testing all-time highs and that DG proves to be a reliable company during COVID for their value focused customers.
All of the information that I am sharing with you is found in their 10K statement.
Dollar General is the largest discount retailer in America, they have about 16000 stores and operate in 45 states. They strive to offer a broad selection of products at low prices (typically $10 or less). A majority of the customers are value focused and rely on low or fixed income.
Main challenges that DG faces in maintaining low prices are: 1.) trade policy and 2.) receipt of goods offered by DG.
1.) Historically, DG has shown that tariffs on products from China as applied to direct imports and domestic purchases did not have a net material impact on financial results in 2019. DG believes they can mitigate potential sales and margin impact of such increased tariffs on financial results in 2020 through various sourcing, merchandising and pricing efforts. However, it should be noted that changes in trade policy can result in higher prices for customers which will have a negative impact upon budgets, spending.
2.) There is limited insight into the extent to which business may be impacted by COVID and there are many unknowns. While DG currently expects delays in the receipt of certain goods in 2020 as a result of COVID, they do not anticipate a material impact to financial results in 2020 due to these delays.
To support other operating priorities, DG remains focused on capturing growth opportunities. In 2019, DG opened 975 new stores, remodeled 1024 stores, and relocated 100 stores. For 2020 DG plans to open 1000 new stores, remodel 1500 stores and relocate 80 stores for a total of 2580 real estate projects.
DG has paid a quarterly cash dividend since 2015. On March 11, 2020 the Board of Directors announced an increased amount of the quarterly cash dividend to $0.36 beginning with the dividend payable on April 21, 2020. The Board expects to continue regular quarterly cash dividends. Further, DG intends to continue their share repurchase activity in 2020.
The following information was gathered form the DG website and point to DG remaining resilient during COVID.
– Between March 14th and April 30th DG has hired more than 43000 individuals with thousands of more applicants and candidates going through the interviewing and hiring process.
– An additional $25 million was recently invested to employee bonuses
I see DG testing all-time highs in the coming weeks. All of this has made me bullish on value focused retail stores. A comparable company to watch is WMT, they put out earnings on May 19th.
Additional food for thought; since 2009 DG has only missed earnings 2 times and has had some pretty impressive gaps up following the day of reporting earnings.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.