3) Dollar General Corporation (NYSE:DG)
Market cap (As of 25 October): $17.6 billion
Forward P/E (As of 25 October): 12.36x
% Decline on a YTD Basis: ~42%
Number of Hedge Fund Holders: 42
Dollar General Corporation (NYSE:DG) is a discount retailer, providing various merchandise products in the southern, southwestern, midwestern, and eastern US.
Dollar General Corporation (NYSE:DG) is focusing on a back-to-basics approach. This means that it is targeting core operations and enhancing customer value. Wall Street believes that the company’s efforts to improve price positioning relative to Walmart should help it in the near term, providing a competitive edge. The enhanced price competitiveness, streamlining of operations, and strengthened brand perception should drive topline growth.
Over the long term, Dollar General Corporation (NYSE:DG) is expected to be aided by its dense store network, which served as an intangible asset because of its convenient fill-in shopping locations throughout rural communities. Also, the company’s impressive scale and proximity to consumers, favorable product mix, and small basket size should help the company in tackling challenges from e-commerce competition.
As Dollar General Corporation (NYSE:DG) anticipates net sales growth, same-store sales growth, and investments in markdowns to continue, it believes that the business model remains resilient and is committed to executing a foundational back-to-basics plan. The company plans to increase efforts to gain more market share. Also, Dollar General Corporation (NYSE:DG) is focused on reducing shrink and simplifying operations in a bid to improve margins.
The shares of the company have an average price target of $102.55. Heartland Advisors, an investment management company, released its third-quarter 2024 investor letter. Here is what the fund said:
“The convenience store operator Dollar General Corporation (NYSE:DG) was our worst performer during the quarter. The retailer, with more than 19,000 stores, 80% of which are in rural towns with populations of less than 20,000, recently slashed its 2024 earnings guidance, sparking a late-summer sell-off.
Same-store comparable sales and margin guidance were cut meaningfully, implying a significant slowdown in the second half of the year. While some of the troubles may be due to the financial challenges of its core customers, with average incomes of just $35,000, Dollar General is also losing market share because of Walmart’s initiative to reduce entry-level pricing. Management acknowledged a need to invest in promotions to stimulate demand, but they refute concerns that DG needs to invest more in store-level labor.
We exited the position and harvested the tax losses, but we continue to monitor the company’s fundamentals. We’re looking for comparable sales to stabilize driven by promotional activity, a boost in labor investments, and management to downsize store expansion plans to improve free cash flow generation and accelerate deleveraging efforts.”
