Subject: Re: FKA: DG
Jim, could you share your thoughts on why you're purchasing DLTR instead of adding more to DG given how further depressed its price has become after the earnings release?

Sundry reasons, not all of them that astute I suppose:

* I have a long history with owning (and selling, and owning) Dollar Tree, and have made a LOT of money doing so. Possibly my most profitable-ever pick after Berkshire? A bit of the "dance with who brung ya", mixed with "if it works, maybe try it again".
* As a result of the above, I have followed them very closely. I don't have as much of a history or deep knowledge with DG: sometimes you only get that from watching a firm you own over a period of years.
* I thought that they were getting towards the cheaper end of their cycle even before the recent drop.
* I already have a whack of DG, and things are weird enough at the moment that I'm not entirely confident which of them is getting hit with which problems that might not be merely cyclical, so a different pick makes some sense. Diversification is merely a defence against ignorance, but hey, it IS a bit of a defence.
* And of course DG's recent report really was stuffed with a litany of disappointments arising from a long list of different things going wrong. I'm disciplined enough to hold, but it takes even more confidence in one's estimation of the future to put in even more.

Dollar Tree was wrong about their acquisition of Family Dollar. The acquired stores, which did not have great economics, never improved to the level of economics of the original Dollar Tree stores. It has taken a few years to work through that mistake, and their valuations suffered for a long time because of it. But the rest of their business has been nicely profitable and growing.

if dollar stores turned around, DG would likely have the most to gain. And if dollar stores don't turn around, DLTR is likely to suffer the same fate as DG, with potentially more room to fall since it's not trading at as steep of a discount.

I don't think of it entirely that way. The "industry" problems aren't what scare me, mostly. To the extent that they are in the same business (which they aren't, exactly), there is good reason to think that the base case is that the business model will continue and the problems are primarily cyclical. I believe it's the company specific things that are harder to predict here.

Not sure who posted it, but it's an interesting viewpoint on DG: maybe the current lull is the "just before a downturn" gap after their poorest customers have started to run out of money, but before the next tier up is suffering so much that they have to trade down to dollar stores for necessities--bringing in a new customer population. The first effect is certainly a factor, given how DG has commented on how sales are much lower in the last week of each month lately simply because their customers run out of money. Of course I would like that comment, as it reinforces my confirmation-seeking desire that the problems at both be just passing clouds.

On the bad news front, maybe Walmart really is more of a threat to dollar stores than they used to be. I have to say from personal experience in Canada recently that the Walmart on-line experience is extraordinary, even (especially) compared to Amazon. It was my first experience with "what time today would you like your stuff delivered", not the sort of thing you get from Amazon, at least outside the US. In Europe the Amazon experience quality has been on a very slow slide over the years as they have become more of an "Ebay without the vendor rating system" as a larger and larger fraction of the site is just third party vendors, often dodgy ones.

Jim