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Morningstar's Dollar General Corp Stock Analysis

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Soft End to Dollar General’s Fiscal Year Does Not Diminish Our View of Its Long-Term Prospects

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Narrow-moat Dollar General’s fiscal fourth quarter fell short of our expectations (1.4% same-store sales decline versus a 1.0% forecast dip), but we still believe it is poised for growth as it capitalizes on its advantaged store footprint and expansion opportunities. We attribute the sales shortfall to a somewhat greater than expected store traffic decline, likely reflecting pandemic-related volatility as case counts spiked and as the chain lapped 13% same-store growth in the prior year’s final period. Management set fiscal 2022 guidance, calling for 12%-14% EPS growth; our 13% target is in range and should not change much. Our $203 per share valuation should rise modestly due to a time value of money-related adjustment, not overly dissimilar from the shares’ 4% trading price pickup after the news. While we suggest prospective investors await a more attractive entry point, our long-term outlook remains favorable (mid-single-digit top line growth rates, high-single-digit adjusted operating margins, on average, over the next decade).

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Dollar General Corp's Company Profile

Business Description

A leading American discount retailer, Dollar General operates over 18,000 stores in 47 states, selling branded and private-label products across a wide variety of categories. In fiscal 2021, 77% 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 4% 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 most 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, 2022
Fiscal Year End Jan 28, 2023
Stock Type Classic Growth
Employees 163,000

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