Post New

Earnings miss - due to higher cost of goods (aka inflation); shares down 9% pre-market to 183
Sales rose 7%; gross profit 31.3 vs 31.6%; quarterly net income down from 550 to 510M. Co lowered same store sales growth forecast from 3 to 1-2%
https://seekingalpha.com/news/3976527-dollar-gener...

Thanks for pointing it out.
Looks pretty good to me at (currently) $172 and change.
Seemingly around 23% cheaper than average in the last decade based on multiples of apparent sales, cash flow, and earnings.
Even if future multiples are lower, that offers a modicum of a margin of safety.

It might be a bit of a wait for a position to do well, but of course that's always the case.

Jim

I have a hard time pulling the trigger on Dollar Tree or Dollar General from personal experience. When I've gone locally, the stores are pretty bad. The stores are dirty, inventory is on the ground, lines are long, employees do not seem happy, and the prices aren't even that good on a number of items. It might just be a couple of bad stores out of 10,000+, and it is a terrible reason not to invest in something, but it has made me pause anyway.

Because I stopped there, so I didn't get to - in the case of DG - look at that debt level and maturity... I changed my mind while I was writing that to not be lazy, and looked in https://investor.dollargeneral.com/download/compan... and page 119 worries me a bit with near term debt maturity ($1.5B in <1 yr?), their current rating, and cost of refinancing.

I also feel like I'm waiting for the entire market to go on a better sale.

During DG's plunge to low 160s today,
it became a bit too tempting.

So opened a position in DG January 2025 160 calls.
Kind of like paprika. A little bit can't hurt
(even if its flavor slowly fades away),
but it may help the overall stew (portfolio)
if left to roast in the pot for a long time
(oh, 18 months or so).

https://jacobsmedia.com/wp-content/uploads/2013/06...

vez

"in the case of DG - look at that debt level and maturity... I changed my mind while I was writing that to not be lazy, and looked in https://investor.dollargeneral.com/download/compan... and page 119 worries me a bit with near term debt maturity ($1.5B in <1 yr?), their current rating, and cost of refinancing."

In 2022, their cash flow was $14.34/share and they had 219,108,477 common shares outstanding. Hence, their cash flow was $3.15 billion. Also, their net income was $2.34 billion. Do you think that is not enough to cover the debt?

"When I've gone locally, the stores are pretty bad. The stores are dirty, inventory is on the ground, lines are long, employees do not seem happy, and the prices aren't even that good on a number of items."

That has been true for ages, but they still seem to make a boatload of money, which is what matters at the end of the day for the investor (not that I am in any way condoning the store environment -- they could definitely improve there). It may be for this reason that Mr. Buffett rarely visits the businesses he invests in and instead, prefers to primarily focus on financial performance (e.g., metrics such as ROE). (Mr. Buffett also considers other factors such as managerial capability but those, in some way, directly or indirectly, over a period of time, tend to show up in metrics such as ROE).

On this note, in 2022, DG's ROE was a whopping 43.6%. Valueline estimates that their ROE in the years 2026-2028 will average 43%.

Valueline also estimates that their EPS in the years 2026-2028 will average $15.80. They are not always correct but they do consider the average analyst expectations. Going by Jim's rule of thumb that if you pay 10 to 12 times expected EPS 5-10 years from now, the current price seems like a great deal.

"I also feel like I'm waiting for the entire market to go on a better sale."

If you can pull that off, that would be awesome! Personally, I'm not good at market timing, so I prefer to snatch deals when they are available without regard to the whole market.

'I have a hard time pulling the trigger on Dollar Tree or Dollar General from personal experience. When I've gone locally, the stores are pretty bad. The stores are dirty, inventory is on the ground, lines are long,'. Good morning, I live in Henderson Nevada, very close to Las Vegas. For our foreign friends, who can't imagine what's happened in our once great country, in the retail space. My neighborhood use to be upscale and very safe. However, the thief's have figured out that retail stores in the best areas, don't lock up as much merchandise. Just this week my CVS was robbed by a person in a hoody and a mask. Smiths is constantly being robbed, old employees I know confirm this. The dollar stores I visit are depressing, I walk through quickly and leave. Management , in general, has gotten lazy. A new Dollar Tree just opened near our Costco , I intend to check it out shortly. The Nike store near us was redesigned, with security in focus. I have no idea how retail stores in America can overcome these, shrinkage issues, going forward?? It's embarrassing to write this, but, it's even worse then we are being told because the bad guys are traveling to better areas. 🥲🥲 If most goods are under lock and key, how many 20$$ an hour employees do you need to keep opening the cabinets for shoppers? What does this do to the retail shopping experience? Decriminalizing stealing was a huge mistake.

So opened a position in DG January 2025 160 calls.

Just a thought:
Options where the strike price is very close to the current stock price are very expensive: that is where the "time value" peaks.
If you have a little extra cash lying around, a strike price even a small amount lower will have a substantially lower breakeven.

For example, if you sold your 2025 $160s and bought 2025 $145s, the net result would be
* You would tie up about $8.78 more in cash per share till January 2025
* You would lower your breakeven by about $6.22 per share.

If you consider that replacement as a stand-alone transaction, (and assume the firm won't go bust!), that's a profit of 71% on the new money.
You're investing the incremental cash at a guaranteed annualized rate of return of 39%/year compounded.
Your maximum money at risk if the company goes bust is 30% higher. Personally I doubt it, but it's your assessment that counts.


I actually bought a few out-of-the-money calls for fun. Jan 2025 $180s cost me under $20 each, breakeven under $200, which is lower than the stock price the day before.
(if you squint just right, you could think of that as uncallable 10:1 leverage for free)
I will sell them the first time the stock price rises to $180, which is when the time value will peak, and do something else with the money.
Roll to a lower strike if I want to keep the position, or just take the quick profit for beer money, or a better investment if one comes along.

Jim

>> Jan 2025 $180s cost me under $20 each <<
Aha, so you were my competition, driving the prices up. I bought them for $18. Do I win? 😉

Reminder for Americans, Taxes on options are incredibly complex, so it is imperative that investors build a strong familiarity with the rules governing these derivative instruments. Good luck.

I bought them for $18. Do I win?

Yup, ya beat me. My average price was a hair under $19.
Nicely done!

Of course, we both might lose everything, but I expect not.

As mentioned, I recommend selling them when the stock price is $180, when the time value is maximized.
Switch the money to something else. Lower strike calls to lower your breakeven, some other great investment that might be available at that time, beer and pizza?

Jim

Not overpaying for bad assets and building mostly organically really helps the ROE.

rochish, thank you so much for the reply. I could have done better on my original message, and hopefully flesh out some of my concerns below.

> In 2022, their cash flow was $14.34/share and they had 219,108,477 common shares outstanding. Hence, their cash flow was $3.15 billion. Also, their net income was $2.34 billion. Do you think that is not enough to cover the debt?

I think it is, I'm not worried that they will be insolvent, but I'm worry about the impact reduced cash flow and eps on valuation.

> That has been true for ages, but they still seem to make a boatload of money, which is what matters at the end of the day for the investor
and
> It may be for this reason that Mr. Buffett rarely visits the businesses he invests

I agree! It is why I said "it is a terrible reason not to invest in something, but it has made me pause anyway". And while Buffett says that, BRK also doesn't directly hold DG or DLTR, currently, either (to my knowledge).

Mentioning the state of the stores and that was probably a distraction - I should have expanded on the underlying reason for my concern. I feel like Dollar Tree and Dollar General have made money for a long time arbitraging the USD and CNY exchange rate, while putting bare minimum or lower capex or opex on stores. DG, at least, seemed pretty levered already so I don't know if they have any risk of having to finance capex improvements at bad interest rates or increase opex. They have smart executives at both companies that know their business and their customers, though, and I'm sure they think about this more than I do... but that could have been said for First Republic, SVB, and Signature, too.

> Personally, I'm not good at market timing, so I prefer to snatch deals when they are available without regard to the whole market.

You're right. Another comment I should have omitted or expanded on, and it ended up just being a distraction. I am demonstrably bad at market timing based on my track record, to be blunt. But I still "have a bad feeling" about this market, and that has made me pause - in a purely instinctual and emotional way - catching falling knives lately, not just DG.

ajm, thanks for the clarification and the additional thoughts. No issues at all on not expanding earlier. This is an enriching discussion for me as it has compelled me to dig deeper into DG's numbers. I hope Jim can also chime in on the issue of whether DG's debt is dangerous (if he has the time), but I provide some figures below.

I'm not worried that they will be insolvent, but I'm worried about the impact of reduced cash flow and EPS on valuation.

As far as valuation is concerned, their median P/E in the last 10 years is 18 and the range during that period is 17.1 to 22.2 (average annual P/E). The current P/E is around 15ish, which is significantly lower than the lower bound of the range.

<em> DG, at least, seemed pretty levered already .</em>
Their debt is as follows:

Total Debt $7009 mill. Due in 5 Yrs $2458 mill.
LT Debt $7009 mill. LT Interest $211 mill.

Their working capital last year (2022) was $1.7 billion (for a single year). That, coupled with the cash flow I mentioned in my previous post should comfortably allow them to service their debt for the next 5 years ($2.458 billion). Let me know if you disagree as I am also trying to figure this part out.

<em> BRK also doesn't directly hold DG or DLTR, currently, either (to my knowledge).</em>

I don't think one should use Berkshire's ownership as a criterion to purchase or sell stocks. BRK also does not own Google but some investors I really admire (including Li Lu and of course, our own Jim 😊) seem to have a significant allocation to Google. Besides, as has been discussed here before, Charlie Munger has said that "Google has a huge new moat. In fact I've probably never seen such a wide moat. Their moat is filled with sharks.' Still BRK owns no Google.

Sorry, I goofed up with italicizing some of your quotes.

"When I've gone locally, the stores are pretty bad. The stores are dirty, inventory is on the ground, lines are long, employees do not seem happy"

It depends on the store. More specifically, it depends on the customer demographics of the store. This applies to Dolar Tree also.

We regularly go to these stores within a 50 mile radius. When I say "we" I mean that I drive and my wife goes in and shops. I wait in the car, read a book, and pop the trunk when she comes out.

Certain demographics are not bothered by dirty stores and inventory piled up in boxes in the aisles. As I've seen it, "inventory is on the ground" means that the store has gotten a truck delivery and doesn't have empty shelf space to put the stuff. Go back a couple days later and it's all gone. I recall once going in and they had 2 pallets of power strips in the aisle. The price was good so I bought 1. A few hours later I decided that I should grab 2 or 3 more. One pallet was empty and the other has half gone.

It depends on the store. More specifically, it depends on the customer demographics of the store. This applies to Dolar Tree also.

We live about 1/2 km from a DT. Been in a few times, but not recently. After reading this thread, yesterday I took a quick walk around to check it out. For reference, this store is located at a fairly busy intersection, surrounded by mostly upper-middle class neighborhoods. The store was relatively clean, and shelves were organized. No merchandise was on the floor. There were some display boxes out front w/ summer items (hula-hoop, beach ball) to entice customers to come inside. I only noticed one employee, but he was helpful (he was helping a family find something). So "varies from store to store" seems correct.

John

"Because I stopped there, so I didn't get to - in the case of DG - look at that debt level and maturity... I changed my mind while I was writing that to not be lazy, and looked in https://investor.dollargeneral.com/download/compan... and page 119 worries me a bit with near term debt maturity ($1.5B in <1 yr?), their current rating, and cost of refinancing."

That near term debt was now refinanced on the below terms:

"Dollar General Corporation (NYSE:DG) has priced $500M of 5.200% senior notes due July 5, 2028 and $1B of 5.450% senior notes due July 5, 2033."

https://seekingalpha.com/news/3977788-dollar-gener...

Seems pretty routine to me, though Mr. Market is still sour, with a low under 154 this morning.

I've started a decent sized position.

Recent morningstar update on DG.

https://www.morningstar.com/stocks/xnys/dg/quote

Narrow moat, some potential upside after the drop.

CEO bought a couple of shares: https://www.sec.gov/Archives/edgar/data/29534/0001...

Just 3% of what he already owned. That's not exactly a statement.

An $8.75 million bet is a statement regardless your overall wealth.

CEO bought a couple of shares: https://www.sec.gov/Archives/edgar/data/29534/0001...

And now you get another chance to own shares at an even lower price. Currently trading at $153.73.

What's DGs moat? Or is it just a trade from 150 to 250, no guarantee it'll get there. It doesn't seem to have the characteristics of a long term compounder.

What's DGs moat? Or is it just a trade from 150 to 250, no guarantee it'll get there. It doesn't seem to have the characteristics of a long term compounder.

The dollar store business is indeed simple, in many ways.
Buy REALLY cheap things, add a big mark-up, and sell it cheaply. No bad receivables, no dodgy securitizations or refinancing risks.

But the execution is remarkably difficult. The supply chain and purchasing side is very difficult to do well--both huge and nuanced.
And there is a lot of magic sauce in good old fashioned merchandising.
There is a reason they make oodles of money year in and year out, and that (say) Walmart hasn't crushed them.
They are, in their own niche, apex predators of competition.

The thing I always find entertaining is how they go out of fashion with a price crash every couple of years, then fully rebound.
I can't even count the number of times I've bought low and sold high. Made enough to buy a couple of houses, say.
(note, I don't sell high unless I have something better do do with the money--they also make great long term positions, but that's not my personality)
Every time the price crashes, the natural reaction is to think that Mr Market knows something you don't. They're doooooomed!
But nope, they just have prices that wander around a lot for some reason.

It's worth noting that, despite the current huge sell-off, DG has returned 12.7%/year compounded in the last decade,
(beating the average S&P 500 firm by 2.1%/year and BRK by 1.4%/year), with essentially no risk given the robustness of the profit stream and balance sheet.
If today's price were back to its 52 week high, that number would be 18.9%/year compounded. Sounds like a long term compounder to me.
I would not be surprised to see the next few years turn out with >= 9%/year growth in value per share plus a one-time boost of >= 1/3 in the valuation multiples.
Those are relatively conservative figures compared to historical results.
Things could turn out a lot worse than that and still represent a good investment from here.

A quick glance at the last 12 years of headline earnings and multiples: https://bigcharts.marketwatch.com/advchart/frames/...
Quick summary: their earnings are mostly pretty steady, so old fashioned P/E is mostly a not-bad valuation metric for them.
On that simple basis, the firm is currently the cheapest it has been in a dozen years.
If historical trends of net margins and multiples were continuing, the price would be around $225 now, not $132.
Historical trends are not holding this year, but nor is the world coming to an end for them.

Of course, as always, I might be wrong : )

Jim

Dare we ask, is this a similar 'pound the table' moment as we saw with DLTR IN Fall 2021? :)

Looking at macrotrends I've run a fag packet of earnings of 10 dollars per share growing at 12% (below 5 yr trend) for 10 years and a PE of 18 equates to 550 dollars a share and a return of c14% from today the earnings are very stable decent ROE 39% and not bad ROIC 11%.

I've got BRK down at 9.5% for 10 yrs.

For comparison.

I have BABA at 25% pa and Tencent at 21% from current prices.

Interesting. DG share price is the same as 4 years ago despite a 70% increase in EPS and 45% increase in TTM revenue over this period. Might need some patience before the weighing machine kicks in.

Enjoyed this 2018 Bloomstran discussion on DG. Despite its time stamp, I found a lot of his commentary and breakdown helpful and applicable.

https://www.youtube.com/watch?v=aGuLj4AMbs8

They are, in their own niche, apex predators of competition.

They are operationally excellent and based on what I see around my area they seem to target underserved rural areas. Drive around the country side and they pop up in little towns where the only option is a local gas station or two for people needing last minute purchases. I stop in frequently for random items at a couple different DG locations near a lake where we spend time.

What I'm unsure about is how much they can grow store count going forward. They currently have over 19,000 stores in the US, that's more than Starbucks. Sometime next year DG will probably overtake Subway which, I believe, has the most retail locations of any business in the US at just over 20,000. There has to be a cap somewhere and it feels like they may approach it in the next 5-10 years.

None of that is to say I disagree with the likelihood of DG reverting to better multiples in the near future. They can still grow for some time and they will work out of the compressed margins from supply chain disruptions. I haven't bought any DG yet but I'm watching.

I personally like the growth prospects for KMX more. With only ~240 locations I think they have a much longer growth runway towards something like 500-700 locations ultimately.


Jeff

Dare we ask, is this a similar 'pound the table' moment as we saw with DLTR IN Fall 2021? :)

I haven't done a detailed calculation sufficient to to compare my estimates of the DG prospects now and the DLTR prospects then.
But generally, yes. Arguably DG is the better firm, too.
DG at $151.46 as I type.

Super simplified outlook for the degree to which this is a good moment: I'm pretty sure it's going to hit $250 a share fairly soon.
I think that will happen soon enough that it will offer a fine rate of return, with essentially no visible risk of permanent loss of capital.

Here's a really bad reason to buy now:
In the last 12 years or so it hasn't traded at under 19 times trailing headline earnings for more than 15 months at a stretch.
If that rule held, it's a 1/3 upside in a little over a year, even with flat earnings!

For those who for some reason don't like buying before the knife has finished falling, check out this chart.
https://stockcharts.com/h-sc/ui?s=DG%3ARSP&p=D&yr=...
Simple: don't buy till there is a bit of an up-trend for at least a few days.
This is a graph of the ratio of the price of DG to the average S&P 500 firm.
A horizontal line means it's tracking the market, as it was (more or less) 6-12 months ago. But definitely not lately : )

I suspect there are some speculative call options you could purchase today that will provide ten baggers.
(speculative in the sense that if the price remains flat you lose all your capital at risk)

Jim

I suspect there are some speculative call options you could purchase today that will provide ten baggers.

Care to share some of those ten baggers?

I am assuming DG sets a new all time high in 12-18 months. It gives me some 5-6 baggers with reasonable prospect of not losing my capital, if it disappoints and only reaches $200.

Thanks Jim.

For those who for some reason don't like buying before the knife has finished falling, check out this chart.
https://stockcharts.com/h-sc/ui?s=DG%3ARSP&p=D&yr=...

Looks like its rattling around on the floor right now. ;-)

Jeff wrote: I'm unsure ... how much they can grow store count going forward. They currently have over 19,000 stores in the US, that's more than Starbucks. Sometime next year DG will probably overtake Subway which, I believe, has the most retail locations of any business in the US at just over 20,000. There has to be a cap somewhere and it feels like they may approach it in the next 5-10 years.

None of that is to say I disagree with the likelihood of DG reverting to better multiples in the near future. They can still grow for some time and they will work out of the compressed margins from supply chain disruptions.

I agree with your thoughts, Jeff. May I ask, is this the Jeff who is Wendy's brother, from the Fool boards?

I personally find myself surprised on a regular basis by a Dollar General located in a very out-of-the-way place in rural Western North Carolina, in places where I find it kinda hard to believe there is much if any profit supplying the population around it, but I do suppose the population is growing, so the store sales will too, if not particularly rapidly.

Given this saturation of DG stores even out in rural locations, and the sheer volume of stores out there that you note above, it's not hard for me to imagine they are transitioning to a much lower-growth phase of their corporate existence, and I'm sure that thought is a large part of what's fueling the market sell-off.

Seems like it's a good buy, but I sure don't expect long term growth like they've shown in the past.

More from Jeff: I personally like the growth prospects for KMX more. With only ~240 locations I think they have a much longer growth runway towards something like 500-700 locations ultimately.

I also agree with this. CarMax has just opened their first location in my area, the urban center of Western NC with a metro area population of ~470,000 and fairly rapid growth prospects. I expect them to do well here, and if their growth opportunity in my city is similar to what is available out there for them around the US, then they have a long runway.

May I ask, is this the Jeff who is Wendy's brother, from the Fool boards?

Sorry to disappoint BenSolar but I am a different Jeff. I was mainly lurking around the old Fool boards since the late 90s. Tairbear's recent mention of Benkea and the old yahoo boards carried a lot of memories for me following LVLT and WMB too.

Jeff

Dare we ask, is this a similar 'pound the table' moment as we saw with DLTR IN Fall 2021? :)
...
I haven't done a detailed calculation sufficient to to compare my estimates of the DG prospects now and the DLTR prospects then.
But generally, yes. Arguably DG is the better firm, too.
DG at $151.46 as I type.
https://stockcharts.com/h-sc/ui?s=DG%3ARSP&p=D&yr=...
...
Looks like its rattling around on the floor right now. ;-)

A bit of a pop today, now at $159.90.
If that was the bottom (ha! heard that before...) then my "kinda pounding the table" response will have missed the bottom by 19 cents.

Jim

I bought some $DG calls for 2024, ATM and OTM. It feels like a 50/50 'recovers or doesn't in the next year' kind of situation.

It feels like OTM calls could pay out 5-10x if DG recovers, vs 0x if it doesn't.

It feels like ATM calls could pay out 2-3x if DG recovers, vs 0-1x if it doesn't.

Average outcome looks appealing.

Thank you for sharing thoughts, mungofitch and everyone else who contributed on the thread.

lux

Why not buy the DG LEAPs?

>$151.46 as I type.
..
>A bit of a pop today, now at $159.90.

It is now $164 this morning, a day after the $159.90. That is up 8.3% from $151.46 over 2 days. If you can sustain this, Jim, you will be achieving for many Shrewd'm readers an annualised return of 1.083^(365/2) = 2 million times starting capital.

Don't get me wrong though - I'm not suggesting it will be extremely easy to obtain a return of $1 to $2,000,000 over one year. So let's be more realistic and call it just half of that. Even if everyone can receive $1,000,000 for every $1 invested, then it would a great outcome.

Absurdness(*) aside , thank-you for all your posts.

- Manlobbi

* As a contrast to the absurd, for a forecast by Jim that was truly excellent (get ready for Jim to try to contradict the praise). Let's instead move from the short-term to the medium-term. Back on 1 October 2022 Jim proposed that day as a call for a market bottom. This turned out to be out by - wait for it - one single day, which has held to the present. In the investing world, the bell is usually eerily silent at the absolute bottom, but just one day later there was anyway someone in the lonely distant mist ringing it for the first time.

I can't tell you how many times I have scratched my head these last 8 months and said to myself, Jim did it again. Impressive to say the least

DG is up nicely in the last couple of days; apparent was added to someone 'focus' list today, comically, after a bunch of downgrades.

But its the Jan25 call options buyers who have made out the best...

But its the Jan25 call options buyers who have made out the best...

Wait and see. We, who bought those, don't sell yet. It's far too early for that. "We" want far more than that tiny little profit, otherwise it would make no sense to take on the risk of buying options instead of stock.

On the subject of dollar stores, I just read through this collection of short excerpts from Macon Brock's 2018 business autobiography. Brock, who died in 2017, was the founder of Dollar Tree.

http://mastersinvest.com/newblog/2022/7/18/learnin...


There are some interesting nuggets in there, enough to make me consider finding a copy of the book:


I sent Alan Wood to New York with instructions to buy merchandise we could sell for one dollar, for two dollars, for three and five, and to bring back a sampling of good at each level. He returned, and we spread all the booty on a table and asked people in the office to pick out which items should go in each pile. They couldn't do it. Everyone was shocked.

Such are the deals that Dollar Tree provides its customers every day. They defy credulity. They seem to defy common sense. Yet the company's stores maintain one of the highest profit margins in the business.

That's the key to the company's success. We can absolutely floor our customers with the prices we offer and still generate a tremendous income. We don't have to make a killing on each item, just a healthy margin. Which is another way of saying we didn't get here by being greedy. We got here by being smart.

It is now $164 this morning, a day after the $159.90. That is up 8.3% from $151.46 over 2 days. If you can sustain this, Jim, you will be achieving for many Shrewd'm readers an annualised return of 1.083^(365/2) = 2 million times starting capital.


Two comments---

First, there are only 252 trading days in a year, 2 days = 1/126 of a year, so I figure it would really only be 22531 times your capital : )

Perhaps more importantly, I wasn't specifically calling a bottom, just a good entry. (at most, "near enough to the bottom" could be inferred)
The only actual prediction in the post was that the price would hit $250 again some day, soon enough to offer a good rate of return with low risk.
If/when that happens, let's see if my future goggles were working that day!

The current price of $164.32 is still quite a better than where I bought on this dip.

Jim

You made a very strong case, Jim! I added some DG DITM Jan. '25 calls (breakeven 4.3% higher @171.40). Thanks!

Dollar stores loosing their stigma?

High-earners joined the rest of the country in flooding discount retailers such as Dollar General,
Aldi grocery store and Five Below as prices for food and staples rose. Now, with inflation at half its peak,
they aren't letting up.
InMarket, which tracks retailer foot traffic, measured a 4% average increase in the share of dollar-store
visits this year among those making more than $100,000, compared with the second half of 2022.
Households with six-figure incomes are 15% more likely to say they would shop at dollar stores than they were
last June, going from 39% to 45%, according to daily surveys from Morning Consult of about 50,000 Americans.
...
A Dollar General spokeswoman says the brand has attracted and retained higher-income customers lately.

https://archive.ph/2rTMe

Probably the economy, but I suppose it might be partly a result of some investment in the Dollar Tree stores.

FWIW, here is a shot of a Canadian Dollar Store shop from a year and a half ago
http://stonewellfunds.com/DollarTreeShelves.jpg
This seems to leave some room for improvement in attracting the high earners.

Jim

100% -- Aldi, Lidl, Wal-mart are all bringing competitive pressure on prices.

Up over 3% today! Has it had a single down day since mungofitch's called bottom? What can we call this $250 possible price? Is it an intrinsic value? a possible because-it's-been-there-before value? a return-to-normal-when-earnings-come-around value? A typical value for the expected earnings 9 months from now?

OT: Value investor Seth Klarman (Baupost Group) bought Dollar General in Q2
https://www.dataroma.com/m/activity.php?sym=DG&typ...

But never forget:
You're neither right nor wrong because other people agree with you. You're right because your facts are right and your reasoning is right - that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else.

Thanks for sharing. Looks like Markel / TG has been adding too.
As the share price has trended down some over the last month I have considered dollar cost averaging (no pun intended) to add to my existing position

I'm not in the illustrious company of those famous folks, but FWIW I moved a bit of money from GOOGL to DG today.
Around the start of the year 100 GOOGL shares would buy you about 36 DG shares. How it will buy you 81 of them.

I like both as long term holds, but the degree of love does vary with the prices : )

Jim

Could this ecommerce be a threat to DG? Look at the prices plus free shipping, it's very cheap. I have bought a few times on the website and the overall experience is positive. I just bought a smartwatch that can measure blood pressure (quite accurate) for $15.

https://www.temu.com/

Could this ecommerce be a threat to DG? Look at the prices plus free shipping, it's very cheap

I don't think so.
The dollar stores are really an in person business: immediate gratification of small wants and needs.
I see it as mostly orthogonal to on line shopping.

On line shopping doesn't need neighbourhood shops. Neighbourhood shops don't need on line shopping.
Is there a bit of overlap at the fringe? Sure, but only the fringe.

It certainly exists sometimes as a loss leader, but it doesn't make economic sense for any company to deliver a $2 product to your door.

Jim

I purchased some yesterday at $163.40, still have room to add more....

tecmo
...

Jim,
you have discussed ATD.TO in the past and I have been thinking about purchasing some. Its a nice, steady, predictable grower.
I was thinking also of possibly doing some LEAP options on them, but as far as I can tell, Options are not offered on this stock.
Am I correct on this?
Thanks, Lester

you have discussed ATD.TO in the past and I have been thinking about purchasing some. Its a nice, steady, predictable grower.
I was thinking also of possibly doing some LEAP options on them, but as far as I can tell, Options are not offered on this stock.

You have to buy Canadian options. I have done so.
It's certainly possible, though you have to make sure your broker offers them, and there may be regulatory or tax consequences for some people depending where you live.
Currently you can get them out to January 2026. e.g, Jan 2026 $50 calls are bid/ask $22.60/$24.60. In Canadian dollars, of course.
With the stock at $68.49, and a likely buy execution of about $24.20 or better, the implied interest rate is around 5.3%--relatively reasonable.

I like the firm as well, but do remember that just because their earnings and share price have been rising in a smooth and steady way for years, they may not always do so.
A really crude way to think of their business is a tripod: gas sales, convenience store sales to people stopping for gas, and standalone convenience stores.
The most prominent possible fly in the ointment is that gas stations will probably not be a very big industry 10-20 years from now compared to now, and a lot of their convenience store sales are from stores attached to gas stations.
Selling biodiesel to truckers will likely continue, but at some point there will be "peak pit stop".
This outlook may account for the more modest valuation multiples recently, despite the excellent (so far) business results.
Multiples of (smooth) earnings are half what they were in 2015, though they were higher than usual at that point.

Every business has its potential weaknesses, but it's worth enumerating them.
These days, Berkshire's two biggest risks are (IMO) (1) Apple's exposure to their China supply chain, and (2) Apple's exposure to their China sales.
Quite remarkably, at June 30th Apple stock was more than half of Berkshire's equity portfolio at market prices.

If there were a secret program at head office hedging the position a bit at some point, I wouldn't be scandalized or outraged : )

Jim

it doesn't make economic sense for any company to deliver a $2 product to your door.

Temu actually did a decent job for low-price items and small purchase for free delivery. No exactly the same, but more fun and cheap. But one needs a smart phone or tablet to use Temu which a small portion of DG clienteles might not have?

Temu actually did a decent job for low-price items and small purchase for free delivery. No exactly the same, but more fun and cheap. But one needs a smart phone or tablet to use Temu which a small portion of DG clienteles might not have?

For me, the thing to realize is that the delivery costs are big and real, and probably rising.
Somebody has to pay for it, somehow, even if it seems "free" to the buyer.
So, if it doesn't make economic sense (because the delivery cost is higher than the value of the goods, or higher than the margin on the goods), it will never be the main way things get done.
And shouldn't be.

I think the great majority of dollar store customers have smart phones.
It's just a different kind of shopping which is done in person, and a lot of it (once in the store) on impulse.
The quart of milk, the buck for the kid "go find something for yourself", the treasure hunter, the stuff you need right now.
Of course that sounds a lot like stubborn denial of a threat, but I think that if the on-line folks were a big problem it would have shown up by now.

I think I mentioned somewhere that one thing I like about dollar stores as an investment is that they are wonderful for those who like to trade.
They go in and out of fashion far more often than their steady economic characteristics would warrant. DG seems to be at the cheap end of the cycle right now, but that's no reason to think Mr Market is any more right this time than last time.
Pre-market: S&P futures down, DG up, Yahoo Finance headline "Why discount retailers are 'en vogue' right now".
I think an upswing will come soon enough.

Jim

Temu actually has a minimum order of $10 for free shipping. It certainly can't make money at such low prices, it's paying for acquiring customers.

But one needs a smart phone or tablet to use Temu which a small portion of DG clienteles might not have?

I assure you, they all have a smartphone. You can, for example, buy a Tracfone with 1 year of service from QVC or HSN for $40-$80, on sale. Sales which they have every other month.

Or...just up the street from a nearby DG, and across the street from a FD/DT, in an empty parking lot, there is often a tent where if you are low income you can get a free smartphone.

<Temu surpassed 100 million active users in the United States in May 2023>

https://www.businessofapps.com/data/temu-statistic...

Many items sold in DG could be bought on Temu. How much DG's business will be affected remained to be seen, largely depending how long Temu can sustain its current business model.

but FWIW I moved a bit of money from GOOGL to DG today.

Man, I have to start posting my trades more often.
DG up $3.43 (+2.1%) this morning.

(GOOGL is up too, but only 0.05%)

Jim

...when mungo talks...

I assure you, they all have a smartphone. You can, for example, buy a Tracfone with 1 year of service from QVC or HSN for $40-$80, on sale. Sales which they have every other month.

I imagine most shoppers at DG have smartphones, as do most shoppers at most stores.
I don't have one. But then I've never been in (or seen) a Dollar General store, either.

Jim

<I don't have one. But then I've never been in (or seen) a Dollar General store, either.>

Good company!:) Me too.

And I thought I was the only dinosaur without a smart phone - or being a Dollar Store shopper.

We even still take a paper newspaper. The horror, the horror .............

'We even still take a paper newspaper. The horror, the horror'

I recall my late father always looking at the stock quotes in the 70s before the sports, editorial & comics. I think an early interest developed and dozens of questions arose from those pages of stock quotes and my curiosity as to WTH they represented. I recall there was a small broker that in NC had a sign out front on a busy road that alternately flashed the time and DOW quote and had a variable light colored water fountain as well- strange the early influences that shape who we may become.

I have an Apple smartphone but feel like I am the last of my peer group to not have a Netflix subscription nor Amazon Prime membership!

I have an Apple smartphone but feel like I am the last of my peer group to not have a Netflix subscription nor Amazon Prime membership!

Illusions, sorry. If you are in your twenties, you might be right. Otherwise I probably beat you. I have a smartphone, but that doesn't count, as I only have one because my father one day gave me one with the words: "Son, you are a computer geek. You must have a smartphone. Here." and I could not not refuse his gift.

Otherwise not only no Netflix, Prime or whatever, but also not that invention of the devil which is called 'social media' or so. When people ask me to communicate with me via tell me Whatsapp I reply "What App? My App is called 'Email' ".

P. S.: I am a Pacifist (I think). Otherwise with access to a time machine I would go back and kill Steve Jobs to at least delay that devilish invention which causes everybody to walk around looking down and/or talking to invisible ghosts.

P.P.S.: A friend told me his son and that son's girlfriend communicate via their smartphones even when they are not far apart and could easily meet physically. I wonder what that means for the continuation of the human race as that requires certain activities which are quite difficult to do remotely.

It is becoming well-nigh impossible to not have a smartphone. Every store and every company assumes you have one. There are a few financial companies and banks that need to text you a 6-digit code to verify you. In the last few months I have tried to open a few high-interest savings accounts that *require* you to have a smartphone, both to verify you and to conduct online transactions.

Bummer for me, our house is in a dip in the land and cell signals skip right over us, we have to go outside and run to the top of the hill to get a signal to get their code.

Now, when you go to McDonald's drive-thru, the first thing they say when you reach the ordering speaker is "Do you have your order in the app?" Also, many fast-food places give you deals & discounts if you order in the smartphone app.

I resisted for a long time, our voice-only dumb flip-phone worked fine for us, but the wife kept insisting, so we finally got one (actually 2, one for each of us).

Our first was a ZTE, $11.60 incl 1 year service. (not unlimited calls & texts)
Next was a Moto G6, $57+tax with a $50 giftcard, net $7.74
Next was another G6, $58 - 20% discount, with a $50 giftcard, net $-3.35. Such a deal!
All Tracfone, 1 year, 1500 minutes.

You, too, can be as cheap as me.

----------------------
I missed the DG sale, put in a limit order that didn't fill, then the price ran up.

Coincidentally just today I was searching for a new phone to replace my current one which is slowly dying...I can't seem to find a battery that wasn't manufactured a decade ago and already aged.
(it's one of the last true Nokia dumb phones, but with touch screen)

There are some nice dumb alternatives these days.
But, other than the dire things reaching for the lowest price point, I found it interesting that they seem to be marketed primarily to people trying to "detox" from smart phones. They don't seem to realize that some people decided never to get toxed in the first place.

e.g. a few here https://dumbwireless.com/collections/phones

Of course, now that I am a gentleman of a certain age, most I meet simply assume the lack of a smart phone is because old folks aren't tech-savvy.
I'm more in tune with the Sunbeam folks--a group of Mennonites savvy enough to build a phone, but who try to be judicious about what modern technology to join.
I was just about to buy their "F1 Orchid" model but it doesn't have the radio bits needed to work in Europe. Aimed at Americans without passports, I guess.

Jim

<< Coincidentally just today I was searching for a new phone to replace my current one which is slowly dying...I can't seem to find a battery that wasn't manufactured a decade ago and already aged. >>

Jim,

As I'm sure you're aware, the EU is mandating replaceable batteries for phones by
2027. I'm hoping some manufacturers of Android phones will be on board by the time
I'm ready to replace my low-end Samsung phone. (I've already had to replace its
motherboard.)

-Rubic

This should bode well for DG.

'Walmart Inc. raised its annual profit forecast for the second straight quarter after scoring new sales gains with bargain-hunting US shoppers.
Grocery revenue continued to climb and Walmart's general merchandise business, while still soft, was stronger than the company expected at the beginning of the second quarter, said Chief Financial Officer John David Rainey. The retailer is also still benefiting from stepped-up demand among higher-income customers, and e-commerce jumped 24% in the US.
'We're gaining share and our value proposition continues to resonate, both for value and convenience,' Rainey said in an interview Thursday as Walmart reported results for the three months ended in late July. 'The consumer is still spending, but they're being discerning in their spending.''

https://archive.ph/c0olX#selection-4853.0-4867.123

This should bode well for DG.
...
'Walmart Inc. raised its annual profit forecast for the second straight quarter after scoring new sales gains with bargain-hunting US shoppers.
Grocery revenue continued to climb and Walmart's general merchandise business, while still soft, was stronger than the company expected at the beginning of the second quarter, said Chief Financial Officer John David Rainey. The retailer is also still benefiting from stepped-up demand among higher-income customers, and e-commerce jumped 24% in the US.


Yes and no. This quarter, Target's revenues were off, but Walmart did well. The part about Walmart's "new sales gains with bargain-hunting shoppers" might bode well for discount retailers, but the part about "stepped-up demand among higher-income customers" and the part about "and e-commerce jumped 24%" suggests to me that Walmart is doing better in the parts of its business that are orthogonal to the dollar stores.

Really nice idea, though. 14 times average earnings from 2020 to 2022, steady grower, average 4.5%/year share count reduction since 2013, close to its lowest price in the last year, safe haven in a recession... what's not to like? Why don't I own this?

dtb

Really nice idea, though. 14 times average earnings from 2020 to 2022, steady grower, average 4.5%/year share count reduction since 2013, close to its lowest price in the last year, safe haven in a recession... what's not to like? Why don't I own this?

Other than the gods trying to make me look foolish yet again, I can't see any reason it shouldn't work out well.
The 10 year rate of EPS growth has been 16.5%/year.
I'm not clear on why Value Line thinks that's about to drop to 5.5%/year over the next 3-5 years on the back of 6.5%/year sales growth, but even if it does the outlook for returns is pretty good.
(their price target range and time frame range works out to an average return of 15.9%/year, plus or minus a lot)

One thought:
For this type of stock I find it's important to make up your own mind about the likely value before looking at the current stock price. Don't assume the market knows something you don't.
Sure, they have reduced guidance for this year.
But always invert: if it were trading at a premium valuation multiple everybody would agree that it was deserved.

Jim

" The part about Walmart's "new sales gains with bargain-hunting shoppers" might bode well for discount retailers," Just a heads up, in case foreigners don't know. The last time I was in WMT, they had a new dollar section, I wonder how its doing?

Really nice idea, though. 14 times average earnings from 2020 to 2022, steady grower, average 4.5%/year share count reduction since 2013, close to its lowest price in the last year, safe haven in a recession... what's not to like? Why don't I own this?

Current price $160.95. I just bought a bit more.
Look out below.

Jim

The last time I was in WMT, they had a new dollar section, I wonder how its doing?

All I know is that my wife heads for that section every time we go into a Walmart.

I think it's all crap, but what do I know?

Current price $160.95. I just bought a bit more.

Puts look juicy as well.

Current price $160.95. I just bought a bit more.
...
Puts look juicy as well.

I tend to go for put writing when I like the stock, but it's not QUITE cheap enough to make me jump. ATD.TO might count on that front for me, as an example.
But I don't find that problem for DG at this juncture...upside looks very solid to me.
I bought some Jan 2026 calls. The implied interest rates are unpalatable at something like 6.4%/year, but hey, life needs entertainment.

Here's a really really bad way to invest: the shares of growing firms will hit fresh all time high prices from time to time. After a bubble it will be a very long wait, but otherwise a more moderate time frame.
How well would you do on a stock if that happened within N years, for various values of N?
For DG, a return to the all time high from last year would get you a nominal 17.7%/year return if it took 3 more years to be revisited, and 8.5%/year if it took 6 more years.

Jim

I tend to go for put writing when I like the stock, but it's not QUITE cheap enough to make me jump. ATD.TO might count on that front for me, as an example.
But I don't find that problem for DG at this juncture...upside looks very solid to me.
I bought some Jan 2026 calls. The implied interest rates are unpalatable at something like 6.4%/year, but hey, life needs entertainment.

I already own a decent sized position and some calls as well but would like to add more if I can get them cheaper, so why not add a bit of juice via puts? Sold some Jan24 $155 for $9.9, if they get excersiced I'll keep the stock, otherwise I get 16.8% p.a.

I bought some Jan 2026 calls.

My broker doesn't list any options for DG beyond Jan 2025.

Where did you trade the Jan 2026 options ?

Thanks.

My broker doesn't list any options for DG beyond Jan 2025.
Where did you trade the Jan 2026 options ?

Sorry, brain glitch. Jan 2025.
I'm usually dealing with two different years, so the "far out" one is frequently one more than the one I've been dealing with the most.
But I've been dealing with 2025s a lot lately, so while writing the post I mentally added 1 when I shouldn't have!

The Jan 2026 options do start becoming available in less than a month.

Jim

I've been nibbling all afternoon.
My last offer was $159.50, but it expired unfilled. Maybe tomorrow.

Crazy price action this week. Up , down, down, down, up, down.
Big drop down from 200 at the 1st of June.

I think the big boys all dumped their shares the first weeks in June and now it's mostly the small guys trading it, searching out a solid price.

All I know is that my wife heads for that section every time we go into a Walmart.

I think it's all crap, but what do I know?

First of all, count yourself lucky on having an economically-minded wife. I have no clue what that heavenly sensation could be like.

My uninformed impression is that WalMart (and Amazon) is not all crap like Temu or Wish.
US market is huge and American shoppers are pretty savvy. Prices track value for most items. However - brand names seem to want to maintain their reputation so even at retailers like WalMart, brand names are goid quality. Eg Schwinn bikes.

Exception: Gilette razors. Thanks to Harry's and other new competitors, Buffett's former pick adjusts its quality to match the price, so WalMart price overwhelms the Gilette brand if you buy the latter in the former.

I monitor options flow in the stocks I own. I noticed that there were a good number (1000) of Jun'24 130 strike puts bought a couple of days ago. And the price action in the stock has been weak since then. This could just be a coincidence, but I have bought some of the same puts as a hedge against my long position.

Mavsfan, since you mentioned it, this should interest you if you haven't seen it. "" Check Out What Whales Are Doing With Dollar Gen
BENZINGA 12:45 PM ET 8/17/2023
Someone with a lot of money to spend has taken a bearish stance on Dollar Gen(NYSE:DG).

And retail traders should know.

We noticed this today when the big position showed up on publicly available options history that we track here at Benzinga.

Whether this is an institution or just a wealthy individual, we don't know. But when something this big happens with DG, it often means somebody knows something is about to happen.

So how do we know what this whale just did?

Today, Benzinga's options scanner spotted 14 uncommon options trades for Dollar Gen.

This isn't normal.

The overall sentiment of these big-money traders is split between 28% bullish and 71%, bearish.

Out of all of the special options we uncovered, 4 are puts, for a total amount of $196,730, and 10 are calls, for a total amount of $381,341.

What's The Price Target?
Taking into account the Volume and Open Interest on these contracts, it appears that whales have been targeting a price range from $105.0 to $220.0 for Dollar Gen over the last 3 months.

Volume & Open Interest Development
Looking at the volume and open interest is a powerful move while trading options. This data can help you track the liquidity and interest for Dollar Gen's options for a given strike price. Below, we can observe the evolution of the volume and open interest of calls and puts, respectively, for all of Dollar Gen's whale trades within a strike price range from $105.0 to $220.0 in the last 30 days.

Dollar Gen Option Volume And Open Interest Over Last 30 Days

Dollar Gen Option Volume And Open Interest Over Last 30 Days
Options Call Chart

Biggest Options Spotted:
Symbol PUT/CALL Trade Type Sentiment Exp. Date Strike Price Total Trade Price Open Interest Volume
DG PUT TRADE BEARISH 08/18/23 $220.00 $120.0K 50 294
DG CALL SWEEP BULLISH 06/21/24 $195.00 $100.3K 137 130
DG CALL TRADE BEARISH 09/01/23 $170.00 $38.0K 198 104
DG CALL SWEEP BULLISH 01/19/24 $190.00 $36.1K 1.0K 80
DG CALL TRADE BEARISH 01/17/25 $105.00 $33.1K 61 1


Where Is Dollar Gen Standing Right Now?
With a volume of 1,213,041, the price of DG is down -1.94% at $160.5.
RSI indicators hint that the underlying stock may be approaching oversold.
Next earnings are expected to be released in 14 days.
Options are a riskier asset compared to just trading the stock, but they have higher profit potential. Serious options traders manage this risk by educating themselves daily, scaling in and out of trades, following more than one indicator, and following the markets closely.

If you want to stay updated on the latest options trades for Dollar Gen, Benzinga Pro gives you real-time options trades alerts.

I monitor options flow in the stocks I own. I noticed that there were a good number (1000) of Jun'24 130 strike puts bought a couple of days ago. And the price action in the stock has been weak since then. This could just be a coincidence, but I have bought some of the same puts as a hedge against my long position.

I would suggest that one not be too hasty to make a conclusion about what the traders' opinions are, nor for that matter about whether they are right about whatever reasoning it is. Just because it's a big trade doesn't mean it's a smart trade.

In this case, for example, it could also be some trader wanting to SELL those puts, which is a bullish move. It was even discussed in this thread.
The counterparty buying them can be the market maker, who will then buy stock to offset the exposure being taken on, in proportion to the option delta.

Much of what goes on in the option market is entirely rational, but only within the confines of the assumption that there is no difference between price and value and the companion assumption of price movements being symmetrical random walks. If one doesn't buy those assumptions wholeheartedly, which I sure don't, then much of what goes on in the options market is nonsensical, and expecting it to be rational or insightful or predictive is not going to work out well. There are people quite happy to pay you $5 for the ability to force you to buy a $100 bill for $75.

Jim

I'm not clear on why Value Line thinks that's about to drop to 5.5%/year over the next 3-5 years on the back of 6.5%/year sales growth, but even if it does the outlook for returns is pretty good.

Probably because of saturation issues, but even then 5.5%/year seems too low. That's at least what I'm most worried about. Do you have an opinion on how long the can continues to open new stores in the US? Mexico may work or not, we'll see.

Probably because of saturation issues, but even then 5.5%/year seems too low. That's at least what I'm most worried about. Do you have an opinion on how long the can continues to open new stores in the US? Mexico may work or not, we'll see.

I think saturation is not really a problem.
First, there is a long way to go. The western US has maybe 20% as many dollar stores per capita as the old south states.
And saturation isn't about not having more places to open stores, but about keeping an eye on when and where the marginal economics fade and to what extent.
In many cases they open stores very near each other with very little cannibalization. In other places, especially driving destinations, it's an issue.

And second, slowing store counts aren't necessarily a death knell for investors.
All that money currently going into expansion capex will go where instead? To somewhere that benefits shareholders to some high degree, generally, even if it caps the compounding effect.
People have been talking about Walmart saturation for decades, but their shareholders have done just fine.

As an aside, I lost a small fortune on a Mexican dollar chain private equity deal, so I don't have great hopes for that front : )
Mexico can be a tough place to do business, especially retail.

Jim

And saturation isn't about not having more places to open stores, but about keeping an eye on when and where the marginal economics fade and to what extent.
In many cases they open stores very near each other with very little cannibalization. In other places, especially driving destinations, it's an issue.

Thanks Jim, that is a very good point.

First of all, count yourself lucky on having an economically-minded wife. I have no clue what that heavenly sensation could be like.

Ha! I first started serious investing, with money we got from doing a cash-back refi on our house. Way back when. Later on, the investment account had grown higher than the mortgage balance, so I asked her if she wanted to sell the stocks and pay off the house. She said "Are you nuts??!! Keep investing."

Throughout H1 2023 and into July, leading discount and dollar chains continued to perform remarkably well. Dollar Tree, Family Dollar (also owned by Dollar Tree Inc.), Ollie's Bargain Outlet, and Five Below all experienced positive year-over-year (YoY) foot traffic growth for every month of the year through July, far outpacing groceries and superstores. Dollar General, America's largest dollar store, did see some slight YoY visit gaps, perhaps due in part to a particularly strong 2022 ' but the chain's July 2023 visits still remained above its already impressive January 2022 baseline.

https://www.placer.ai/blog/discount-and-dollar-cha...

I noticed that there were a good number (1000) of Jun'24 130 strike puts bought a couple of days ago. And the price action in the stock has been weak since then. This could just be a coincidence, but I have bought some of the same puts as a hedge against my long position.

Interesting. Some here are selling puts and others here are buying puts.

Interesting. Some here are selling puts and others here are buying puts.

One's first thought is "they can't both be right".

But the funny thing about options positions is that so few of them (relatively speaking) are done in isolation.
Lots and lots are done in combination with some other position. A put, a call, a long stock, a short stock. An index or ETF position. Even a big receivable from the company in question.

So, strangely enough, it's possible that both the buyers and sellers are doing something rational and ultimately profitable.

Jim

The issue of the likely upper limit for future growth in U.S. DG stores was also addressed in the 2022 Q3 Q&A, wherein the CEO Jeff Owen stated they had room for about 16k "opportunities", including their other ventures:

Q: Could you talk a little bit more about the strong returns that you're continuing to see on those new stores? And what we should expect more so from a continued ROIC standpoint as it relates to some of these new stores as we look ahead?

A: Yeah, Corey, I'll start and then I'll let John fill in on some of your questions around returns. But our real estate model continues to be a huge strength of this business. I mean the low-risk and high-return model is incredibly powerful. [...]

And with 1,050 new store, it continues to just highlight our ability to serve the customer and our ability through format innovation, our real estate model, our technology, we're able to go where the customer needs us to go. And so, feel great about that. And really pleased at the fact, through format innovation, this larger store we're opening, our new store performance has been incredibly positive. And I'm very, very pleased at our ability to exceed our pro formas, and we continue to see that.

So that larger store format is continuing to deliver higher sales per square foot, which is excited. And as you know, the large majority of our openings are in that larger footprint. But as you think about the next year in the future, I think the other thing that excites us here is the pipeline that we have. And on the U.S. alone, we have 16,000 additional opportunities, and we feel great about our ability to capture those. And certainly, our fair share, which we've certainly demonstrated, but 12,000 additional for DG, 3,000 for pOpshelf and then 1,000 for DGX. So, stepping back, you can probably hear in my excitement about the real estate and our ability to continue to grow here. And we feel like we're being very prudent in this environment, I'm very, very pleased with the team's performance here.



That'd be a DG store count of 31, 000 - 32, 000 (+12k plus a then-projected +1050 in 2023, plus the 18.8k at the time), with the current DG store count at 19, 000 and change after the openings since the above statement (NB: datascraper has the current DG count as 19, 310; on May 22, 2023, it was 19, 135; on Nov 20, 2022 it was 18, 721). As Jim notes, DG's current store count is very uneven geographically at present, but there is no indication that its store-heavy states (especially places like Texas and the Southeast) are having an issue carrying the load. The more recent pullback has come with news, among other things, that projected store growth is to slow down in the current environment, but I haven't heard or seen any indication that this has changed the outlook on what DG views as its current, projected U.S. saturation point for DG stores.

Also worth nothing that they've continuing to remodel stores and increase square footage that way, so DG store count isn't the full DG story either.

"[T]hat larger store format is continuing to deliver higher sales per square foot..."

A very pleasantly surprising comment.
Naively I'd have expected larger stores to have a larger absolute turnover, perhaps higher per dollar of capex, but lower per square foot.

Jim

Naively I'd have expected larger stores to have a larger absolute turnover, perhaps higher per dollar of capex, but lower per square foot.

Perhaps all Dollar Generals need to keep a certain number of low-margin staples, but the larger store allows them to carry additional higher margin items. The smallest Dollar Generals also do not lend themselves to browsing - you can outstretch your arms and touch things on both sides of the aisles, but sometimes it feels like you could do so with your elbows as well.

With so many people here not having been inside these stores, maybe I should do a YouTube tour. One time we had just finished a hike when we had a toddler emergency that required a change of clothes. We found a Dollar General across the street from a gas station in the middle of farming fields and far from anything else. I've also driven past a Dollar General with a horse hitch in the corner of the parking lot for the local Amish to use. And I have some of the smaller format Dollar Generals in my neighborhood too.

Hi Jim.

One I've been looking at, what are your thoughts on eps growth % over the next 5 years and terminal multiple?

I took $10 eps x 8% @ 5 years x 20 multiple giving s share price of 293 about 12.6% compounded from here.

Eps seems to have stalled somewhat in the last 3 years which explains the slip in multiple from 25 to 15 ish.

One I've been looking at, what are your thoughts on eps growth % over the next 5 years and terminal multiple?
I took $10 eps x 8% @ 5 years x 20 multiple giving s share price of 293 about 12.6% compounded from here.
Eps seems to have stalled somewhat in the last 3 years which explains the slip in multiple from 25 to 15 ish.

Have a look at the other "OT DG" thread https://www.shrewdm.com/MB?pid=904573330
Most of my thoughts are there, most recently posts 3327&3328, and good thoughts from many others.

I don't view it as EPS having gone flat. If so, you certainly wouldn't want to assume an exit multiple of 20 : )
Rather, I think it's better viewed as a situation of poor comps: they had a nice pandemic boost which is going away, and this year is a bit below average.
Ignore that "hump" in sales and profits, and I believe the overall trend remains for growth in sales per share.
Sales per share grew at around inflation + 10%/year in the last 5 years. To be a bit more conservative I'm pencilling in (WAG) inflation + 6.5%/year in the next five.
I expect net profit margins to hold up at (almost) their historical levels of around 6%. Perhaps a small drop due to rising real interest rates, perhaps not.
(if the interest bill becomes a material issue for them, they can simply pay off some debt...they make a LOT of money)

My DG position is now #2 in my portfolio after Berkshire. (though quite a gap between the two!)
That doesn't mean it's a good idea, not by a long shot.

I imagine their upcoming quarterly release is likely to be weak, with new weak surprises. They have certainly telegraphed it enough. Thursday before open I think?
But I don't speculate on what that will do to their share price short term, nor do I much care.
Nvidia blew it out of the park but the stock price is down. Mr Market often does the reverse of what you think : )

Jim

Yes, the 8% eps growth from $10 takes into account the surge in earnings up from $6.6 2020 pre pandemic and the 20 multiple taking account of the back to normal trend earnings growth.

It seems Temu is actually taking wallet share from DG/DLTR, even if uneconomical for them. It is the usual problem, an irrational competitor can ruin the party for a while.


https://www.earnestanalytics.com/temu-takes-share-...

Hi All,

DG seems to be a solid company, but no one seems to have an idea of how long it might take to recover (or get to Jim's predicted $200 price). One way to entertain yourself and make money while waiting is to write cash-secured puts, and just keep writing them as they expire. The volatility is making this attractive, and you can but a longer term OTM call to profit highly if it goes up fast.

On the cash-secured put front, DG currently trading at 117.97:

Date     Strike  %ITM    Cash Req'd  Target       %return  Annualized  Income/Contract  Days to Go  DG FOMO
 Oct-23  120     -1.72%   $ 114.40    $     5.60  4.90%    36.15%       $       560.00  36          125.6
 Nov-23  120     -1.72%   $ 113.80    $     6.20  5.45%    22.58%       $       620.00  64          126.2
 Jan-24  120     -1.72%   $ 110.40    $     9.60  8.70%    20.90%       $       960.00  127         129.6

So if you are willing to park your money for the next 36 days, you should be able to sell the October 120 PUTS for $5.60/share, with a potential return of 4.9% (36% annualized). Should DG drop below 114.40 on the sell date, you will lose money, and if it shoots above 125.6, you would have been better off owning the stock.

What do you guys think?

--G

What do you guys think?

I looked at the same thing. They are probably pretty profitable at quite low risk. I might go a big further out, more Jan or June than Oct or Nov. If it's worth doing, you might as well make more bucks.

But a good way to think of a cash secured put is a way to [conditionally] purchase a stock that you think is not quite cheap enough. Or, a way to make money from a flattish stock price from a security that doesn't seem to have decent odds of a shortish term biggish upside. I think the puts on DG are quite attractive as put writing goes, but I don't think it fits the "not quite cheap enough" or "no likelihood of biggish upside" tests. For this one, I'd rather have all the upside. I have shares and calls.

In fact, I think the potential for a pretty big upside is big enough that a few out-of-the money calls might make interesting lottery tickets. Sure, the odds may favour you losing all that you put into it, but the upside might be quite nice. As an example, imagine being offered a security with 1/3 chance of losing everything, 1/3 chance of a moderate profit, and 1/3 chance of a really big profit. I might put a few pennies in that slot machine : )

A thought experiment trade: build a portfolio of one of each longish-dated calls at strike prices from (say) 120 to some higher number like 180.
Sell each one on the first day that its market value doubles, if it ever does so. Any remain positions, sell 2 months before expiry.
What is the likely distribution of IRRs?

Jim

What do you define as long dated?

Looks like there has been quite a bit of buying today.
Several hundred of the 130-ish Jan'26 and the 140-ish Jan'25.

Also the 125 Jun'24. That doesn't seem long enough dated. BWDIK?

What do you define as long dated?

I dunno, I was thinking Jan 2025 to Jan 2026? There are June ones in the middle of that.
Shorter dated if you're a bit more bullish, longer dated if less so.

FWIW, the time value of any option is almost always at its maximum the first time that the stock price matches the strike price. That's not a bad time to sell it. Either to take a quick profit if that's your desire, or more likely to switch to a different call which is at a higher or lower strike. You can make a nice little profit on the time value and reduce your breakeven.

Jim

Also the 125 Jun'24. That doesn't seem long enough dated. BWDIK?

I agree that's a bit short dated if the goal is the sensible one of giving valuation time to work its inexorable magic on the stock price.

But nothing says that has to be the end of the story. If it's getting late in the year and nothing good has happened yet, a buyer of the Jan 2024 can always sell those and buy later dated ones at that time. That ties up less money from now till late in the year (smaller maximum loss among other things), and who knows, it might pay off quickly. As an added bonus, you'll have several months more information to help make a more informed decision about whether and how much you want to remain long next year.

I did that with my last round of BABA calls for which I went uncharacteristically shorter dated. During that stretch the "rule #1" outlook kept going from bad to worse in my assessment, so I just let them expire worthless and moved on.

Jim

https://youtu.be/dzJFXhTmuro?si=jdFApQTR3GZkyg2m

Interesting look at the chart during the pandemic, possible valuation compression and retail / moat, leases.

Valuation could be as low $20bn on stable cash flows of $2bn. Currently $25bn

Just another perspective.

Don't put any value in the volume of the DG calls. The volume was almost all of my trades, rolling 2025 to 2026 positions. Taking the tax loss, buying more time and a lower strike price. Also rolled Puts.

From a tax perspective it worked good to use the DG tax loses to close out some BRK option positions and roll some. From a financial perspective on the DG options not so good but the BRK options very good :).

You win some and you lose some.

Keep in mind increased volume into weakness can mean, longs giving up or, sellers know something we don't, like a div cut coming, or another bad miss? Good luck.

Share Statistics
Avg Vol (3 month) 3 3.26M
Avg Vol (10 day) 3 7.29M

Sorry it came out that way, 3 month, 3.26 mil, 10 day, 7.29 million average vol.

Thank you. my knowledge of options is limited to selling cash secured puts and covered calls.

I love all the discussion on options strategies and above average volume, all under the guise of financial sophistication.

How about the moat?
Returns of the business?
What are you paying for the entire business?
Management capital allocation?

' I love all the discussion on options strategies and above average volume, all under the guise of financial sophistication.' good morning cranky, it's nice to see you are having a pleasant day. Have you been around the markets much? Do big players ever front run their own moves in the option markets? Are you looking forward to seeing the new movie, Dumb Money ? Have a great day .

Comedy

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