Subject: dg, the new value line,
"" Dollar General faced a challenging
operating environment in fiscal 2023.
The discount retailer’s earnings have
plummeted in recent quarters due to a
combination of weakening consumer
spending patterns and increased cost pressures tied to borrowing and labor.
Elevated levels of shrink (an industry
term that often refers to reduced inventory
due to theft) has also represented a significant headwind over this past year.
While leadership has implemented a series
of initiatives to address these issues, they
will likely take some time to gain traction.
Moreover, costs associated with the
turnaround plan are expected to continue
to weigh on comparisons in the near term.
All in all, we anticipate fiscal 2023 earnings will decline 30% year over year, to
$7.50 a share, which is near the higher
end of the company’s $7.10-$7.60 forecast.
Our model calls for a meaningful
recovery in fiscal 2024. Benefits tied to
the aforementioned efficiency initiatives
should be increasingly supportive to the
bottom line in the coming year. Growing
credit card debt and dwindling household
savings among U.S. consumers could also
potentially fuel a migration to more
budget-conscious shopping. Under these
assumptions, we estimate that earnings
will rebound to $8.40 a share in fiscal
2024, implying improvement of 12%
versus our fiscal 2023 target. However,
this is still a far cry from the $10.00-plus
performances that Dollar General had
been churning out earlier this decade.
The turnaround will be lead by a familiar face. The company brought back
former CEO Todd Vasos in October to help
revive its struggling business. Mr. Vasos
lead Dollar General for seven years before
retiring in 2022. The move appeared to restore confidence in the business, at least in
the eyes of Wall Street (more below).
The stock holds an Average (3) rank
for Timeliness. DG has surged 32% in
value since our last report in October,
fueled by greatly improved equity market
sentiment and optimism tied to the company’s change in leadership. Despite the
recent run up, the stock is still trading below the $250-a-share highs we saw last
year. Our long-term projections suggest attractive upside potential at these levels.
Michael Ratty January 19, 2024""