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Let's Talk About Dollar General

Dec. 06, 2018 2:16 PM ETDollar General Corporation (DG)17 Comments


  • Dollar General reported strong earnings and sales growth in its third quarter.
  • The company benefited from a strong price/mix and continues its domestic store expansion.
  • Retail traders will likely face headwinds due to falling consumer sentiment which makes a spread trade with Dollar General very interesting.
  • Long only traders should ignore the stock for the time being.

Dollar General (NYSE:DG) is one of the best retail stocks of the past few years. The stock price has rewarded investors with a 380% gain since the IPO in Q4 of 2019. However, the most recent earnings release caused the stock to crash more than 6%. My take on consumer stocks has been to stay on the sidelines given the pressure from peaking consumer sentiment and slower general economic sentiment. In this article I am going to things a bit differently. I am going to discuss the quarterly results as I usually do but I will end the article by showing you a way to benefit from Dollar General despite my negative view on the consumer. So bear with me.

Source: Wikipedia Commons

Good Isn't Good Enough Anymore

The Tennessee based retailer had a strong third quarter despite two hurricanes that challenged sales. Total net sales improved 8.7% to $6.4 billion compared to $5.9 billion in the prior-year quarter. These results were also slightly above expectations of $6.4 billion. The sales trend as displayed below continues without any major bumps in the road.

Source: Estimize

This massive sales trend is obviously not only the result of strong in-store customer traffic but the company's store expansion. The company started the third quarter with 14,534 stores and ended the quarter with a net gain of 693 stores which puts the count at 15,227. The total square footage is up 6.0% year-on-year.

The company's sales expansion is not only the result of additional stores. The existing stores reported same store sales growth of 2.8%. This surge was caused by strong consumables and non-consumables partially offset by slower apparel sales. Apparel saw by far the slower growth rate while consumables added 9.4%. Consumables are also by far the biggest part of the company's total sales. Note that customer traffic

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Leo Nelissen profile picture

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Comments (17)

Public 1968-2007
Private 2007-2009
Public 2009-present (this is probably the IPO you refer to.

More history: en.wikipedia.org/...
Leo Nelissen profile picture
Yes, I made a stupid typo. Will edit it ASAP.

@Leo NelissenDo you still think DG is a good long term play? I bought around 200 few months ago. it is just sitting there . I liked their financials compared to Dollar tree.

Leo Nelissen profile picture

@sutterhome1971 Yes, I like discount retail. Good place to be IMO

Uh, when was its IPO?
Leo Nelissen profile picture
My mistake. I will edit it ASAP.
I think DG wins no matter how the economy does.

Good economy: Low income customers have more money to spend. DG benefits.
Bad economy: Middle-income people "trade down" and shop at Dollar General to stretch their income. DG benefits.

Not a blip during 2008 recession.


@adownsExcellent Link.thank you very much


@sutterhome1971 I wish I still owned DG. I foolishly sold it a few years ago.


@adownsOk pumper!!

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