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Dollar General Corp DG

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Quarterly Sales Solid, but Rising Cost Pressures Should Affect Dollar General’s Second Half

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Narrow-moat Dollar General saw better-than-expected second-quarter sales, but rising cost pressure will likely lead us to temper our fiscal 2021 expectations. However, an offsetting adjustment for time value of money should leave our $185 per share valuation largely intact. We still expect mid-single-digit percentage top-line growth and high-single-digit operating margins over the next decade and suggest investors await a more attractive entry point despite the shares’ 4% dip after the earnings release.

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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.

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

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