No. of Recommendations: 4
The whole theft thing is so overblown. "External" (non employee) theft is only typically only (say) 1/3 of shrink, and in any case shrink is lower as a percentage of US retail sales than it was in 2019, not higher. What's that reporter's adage? Three incidents make a trend.
Shrink and theft are up, sure, no argument. And there has been the newish phenomenon of organized retail theft, shelf sweeping and the like. But the overall shrink loss rate is up mainly from an unusual recent low. I think a lot of CEOs have been looking for excuses on earnings calls. Maybe shrink is not an increasing problem across the full spectrum of retail, but it could still be an increasing problem for dollar stores. Shrink must be easier to prevent when you are selling things online, or selling big-ticket items with anti-theft tags, or when you have tight inventory control that is getting better with technology. When I look for a pair of pliers online, the Home Hardware website says there are two pairs left, on aisle 29, at my local store. Dollar stores are understaffed, messy, uncomputerized, don't sell online and sell cheap items that aren't worth putting a tag on. Perhaps an increase in shrink in dollar stores is hidden in the overall statistics because it is much worse in dollar stores but they are only a small part of the whole retail picture and shrink is ok in the rapidly increasing online and higher-tech retail sector?
That said, there's a price for everything. At $75 a share, DG is at 11-12 times last year's earnings and next year's earnings estimates, or about 8 times earnings if they can get margins halfway back up to where they were the previous 3 years. If I had any confidence that this was going to happen, I would buy them. But I suspect their margin problems are not just shrink, but also the fact that they have been adding a lot of lower-margin food sales to the mix. If 81% of their sales are consumables, where they have big competitive disadvantages already against Walmart and other grocery stores, how is this fixable?
https://www.statista.com/statistics/253589/share-o...
