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Dollar General Corp DG

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Morningstar’s Analysis

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Dollar General’s Soft Fourth-Quarter Profitability, Guidance Does Not Change Our Long-Term View

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

With a time value of money-related adjustment offsetting soft fourth-quarter profitability and fiscal 2021 guidance, our $181 per share valuation of narrow-moat Dollar General should not change much after it posted earnings. Fiscal 2021 should prove choppy as retailers face increasing competition for discretionary dollars from more pandemic-affected sectors (like restaurants) as vaccine availability rises and as chains lap difficult 2020 comparisons alongside escalating freight costs. Still, Dollar General’s future looks bright, as we are encouraged by progress in its long-term initiatives (particularly its work to boost its non-consumable assortment and increase self-distribution of cold-storage items). We still expect mid-single-digit percentage top-line growth and high-single-digit operating margins over the next decade. However, despite the shares’ low- to mid-single-digit percentage dip after the news, we suggest investors seek a larger margin of safety.

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Company Profile

Business Description

A leading American discount retailer, Dollar General operates over 17,000 stores in 46 states, selling branded and private-label products across a wide variety of categories. In fiscal 2020, more than 76% of net sales came from consumables (including paper and cleaning products, packaged and perishable food, tobacco, and health and beauty items), 12% from seasonal merchandise (such as toys, greeting cards, decorations, and gardening supplies), 7% from home products (for example, kitchen supplies, small appliances, and cookware), and 5% from basic apparel. Stores average roughly 7,400 square feet, and about 75% of Dollar General locations are in towns of 20,000 or fewer people. The firm emphasizes value, with more than 80% of its items sold at everyday low prices of $5 or less.

100 Mission Ridge
Goodlettsville, TN, 37072
T +1 615 855-4000
Sector Consumer Defensive
Industry Discount Stores
Most Recent Earnings Jan 31, 2021
Fiscal Year End Jan 31, 2022
Stock Type Aggressive Growth
Employees 158,000