Dollar General, stock declined from 52 week high of $261.5 to $102. Then the company announced CEO change and brought back old CEO Todd Vasos, on that news the stock bounced a bit. Todd was CEO from 2015 to 2022, during his tenure the company sales, profits grow steadily and the multiples expanded!!
After the CEO transition to then COO, company had issued repeated cut to guidance. Of course the new CEO hardly in the job long enough to cause so much damage. Obviously Todd during his tenure had under invested in business and driving profits, margins (which of course resulted in multiple expansion, etc). So by bringing back Todd the issues cannot be fixed in next 1 or 2 quarters.
I view this as a multiple quarter turnaround story. They need to reinvest in stores, they are addressing supply chain issues, they have to increase wages, (DG has a very lean staff model, many rural locations has just 1 employee per store!), and need to address safety issues, etc. The interest rate hike is slowly trickling into the economy and that may also impact turnaround. The company primarily addresses lower income, around $35K household income population. This population is more vulnerable to economic hardship.
OTOH, retail is always about SSS and the comps could be getting easier after 2 or 3 quarters.
I will digging more into this name and identify few key metrics which will tell me when you get into this name. At this time, I am content to wait.
For now, today I have sold 10 Jan 25 $55 strike puts, so this is a deep out of money puts and if the stock gets to $55, that would be almost 80% down from this year high.
DG is telling us earnings are down because customers are being more selective. Buying lower markup products.
I think you expect them to adapt by retuning whats on the shelves to current markets. I think its a well managed company likely to survive and recover. In many rural communities they are the only store in town. Have smaller stores than Walmart. Can do well in smaller towns.
They are likely to continue missing on earning for the rest of the year but do better vs comps next year. Most companies would write off whatever they need to in a bad year to clear the deck for next year.
I bought in too early and am down for now but hanging on. Looking forward to recovery.
Yet, the company is planning to increase store format (size), so that they can add more coolers and produce section. They have an ambitious goal of offering fresh produce at 10,000 locations. Fresh produce is a high margin, quickly perishable, low shelf-life items. Fresh produce and frozen items require different logistics and supply chain. Meaning, while they may help diversify and broaden their offering, there is going to be higher investment and a learning curve.
It is important to know when we are wrong and fold quickly. Having said that, I am guilty of not taking profits, or hanging on to deteriorating story, by telling myself at the end of the tunnel there is light. Psychologically it is difficult to take a loss, because “when you don’t sell, it is only paper loss” !!!
I agree. The only reason to hold a loser is because you think it will recover.
I don’t think Dollar General is likely to go bankrupt. Of course we know plenty of other retailers who didn’t adapt to market changes and folded. Bed Bath & Beyone, Sears, Montgomery Ward. It happens.
To me this is a matter of timing. Solid company. Good strategy but didn’t make the right moves fast enough. I think they are working on it and look forward to better performance next year.
This is bad logic. My own experience with PayPal. It is not a bad company just some adjustments with its growth, still growing, very profitable, yada, yada.
When they announced they are changing their model of acquiring users, I should have recognized, the company is going to go through some volatile period and stepped aside. Nope I didn’t.
Turnarounds take longer than you think, buying companies with a very bad valuation means you may be stuck with the stock for a decade while the stock is catching up with the valuation, etc.
Lastly, here is a quote “Soros is the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position. There are a lot of shoes on the shelf; wear only the ones that fit. If you’re extremely confident, taking a loss doesn’t bother you.” – Stanley Druckenmiller
Learning to take losses early and often while painful in the short-term it saves tons of pain in the long-term.
I am still guilty of many mistakes. Posting helps me to recognize my mistakes early and accept and take losses early.
I closed this sometime during the year, and replaced it with Jan 25 $100 puts, which are underwater!!! Separately I also have few covered calls for $100.
If you think Dollar General earnings will recover after they begin rate cuts it could be an excellent opportunity to buy a falling knife. On the other hand if you think we are headed for a recession, it may be way too soon.
I need time to revisit my thesis. I was not prepared for bottom falling out. At first blush it seems the dollar store model seems to be broken. The dollar store count seems to be beyond saturation point, yet these chains are adding 1000’s of stores and burning cash. For ex:
for DLTR
Jan 2015: Outstanding shares 206 M
Today : Outstanding shares 221 M
Jan 2015: Outstanding debt 757 M
Today : Outstanding shares 3500 M
They don’t pay dividend. All the profits generated, the additional shares, debt… just burning cash.
The company doesn’t pay dividend.
US business, whether it is retail, real estate or anything, over builds. They just burn cash and keep expanding the empire. For whose sake?
These are good times, and when the eventual economic downturn comes???
Turnarounds take time, these stock are not going to make V-bounce, the damage is sever. So no need to rush.
In my area every small town seems to have a Dollar General. And often they are the only retailer still open except for a gas station convenience store. For years DG was celebrated for that strategy.
I think the over capacity is in urban areas. In St Louis I must drive out of county to find a DG. They do advertise in my newspaper inserts.
