Dollar General Corp. (DG)

Yesterday they reported a fine quarter: beating revenue, 2.4% same-store sales growth (beating) with strength in every major product category, gross margins beat due to a theft crackdown. Earnings beat and were excellent. DG repeated tat they will keep prices low amid Trump tariffs. DG's customer survey revealed that 60% of their customers have less income than a year ago and will sacrifice some necessities in the coming year; this doesn't bode well for the economy, but make dollar stores compelling. DG is seeing more business from middle/high-income earners. Tariffs: DG imports 4% directly from China.

It reports Wednesday. How much longer can they put a lid on prices, driven up by tariffs? That said, he expect a good quarter, because they got a lot of merchandise before tariffs. But he's worried about guidance--they may need to raise prices.

It reports Thursday. This and Dollar Tree have been eclipsed by Walmart, who is not at the mercy of the big suppliers.

He sold it in April and now owns Costco in this space. It is trying to turn things around and get efficiencies up. It plunged after an announcement in late August.

It yields 3%, but Walmart is crushing it.

Reflects the bifurcated consumer market in the US. Higher-end names that cater to higher-end income levels are doing well. But DG is only in the income segment that's been impacted the most by higher prices.

Questions about health of lower-income consumer. Both companies have flagged this on conference calls. DLTR is taking steps to increase price points, and an improving consumer would be a tailwind. If he had to choose, DLTR would be his pick.

If Trump slaps tariffs on Chinese goods, the dollar stores will suffer badly.

It is a play on the lower economic portion of the economy and will continue to see a substantial portion of the economy. He doesn't like the demographics and doesn't buy retail.

He will never pick a bottom -- there are people who are really good at it, but it's not his strength. Underperforming since January 2023. Bad couple of days on top of a horrible 2 years. Stay away. Weak RSI and broken technicals.

He looks for fundamentals to show that something is changing for the better, accelerating numbers, and price behaviour that supports that view.

DG dropped significantly after the earnings release and is now trading at 11.8x Forward P/E, a record low compared to historical averages. The reason for the sharp drawdown was mainly due to weak operating results and a downward revision in guidance. In the 2Q, DG’s revenue grew 4% to $10.2B, missing estimates of $10.37B and EPS of $1.7 also missed estimates of $1.79. DG revised guidance in same-store sales down, which is expected to be between 1%-1.6%, a reduction from 2%-2.7% that DG previously forecasted. The company mentioned the weak results were largely due to financially constrained customers, however, both WMT and TGT reported solid numbers a few weeks ago. The balance sheet is leveraged with a net debt/EBITDA of 3.0x, which DG is paying down gradually. DG brought back the old CEO with the hopes that he could turn around the company’s operations, which have decelerated meaningfully in recent years. Overall, a very weak earnings result - we think investors are better off looking somewhere else until DG demonstrates a path to recovery.
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Valuation's today are quite attractive, may be low enough to take a bite. Not worried about US economy, it's in decent shape, and that includes all levels of income.

Dollar stores in the US are very different from those in Canada. Super-competitive in the States, with lots of DG lookalikes. It's an issue that sourcing (ie. from China) is not of concern to them. It would come down to the best valuation in the space and what returns per square footage were.

He owned it, and sold about a week ago. One of the secrets to making money isn't always being right; it's recognizing that a trade went sour and getting out. Broke support, so he took the loss based on trading discipline.

(Note the short timeframe.) Still in, but looking at getting out. Not a winner. Looking for support around $130. Unless something changes, he'll be out by next month.